Blockchain Based GSP Auction Mechanism for Carbon Quota Allocation

Carbon trading is gaining ground in China with the establishment of peak carbon dioxide emissions and carbon neutrality goals. The primary concern in the carbon trading market, which is crucial for achieving both decarbonization and maintaining high production levels, is carbon pricing. Under carbon trading, companies purchase the carbon quota from companies with surplus to offset their excess emissions. This process is fundamentally similar to online ad auctions, where advertisers compete to bid for more prominent ad slots. Drawing from the widely used Generalized Second Price (GSP) mechanism in online ad auctions, this study suggests applying the GSP model to carbon pricing. It explores the theoretical likelihood of a locally envy-free equilibrium in carbon buyers’ bidding strategies. Additionally, a practical public auction strategy is designed to realize this theoretical concept. Furthermore, a blockchain smart contrtact-based carbon trading auction scheme is proposed. This innovative approach shifts the traditional centralized carbon trading management to a decentralized model, enhancing transparency and trust in the trading process.