Tax coal or subsidize clean capacity? A differential game of incumbent utilities’ energy transition

Electricity decarbonization requires both replacement investment and decisions about the remaining life of coal assets. This paper develops a Stackelberg differential-game benchmark with an incumbent utility that builds clean capacity and retires coal, and an independent clean developer. Binding organizational constraints make construction and closure substitutes; binding finance can instead make them complements when retirement releases net funds. Annual numerical experiments compare five policy classes using a common post-window continuation rule, incumbent-value limits and explicit capacity-gap ceilings. In the normalized China-scale baseline, the highest-welfare unconditional candidate found within the tested policy class coincides with clean support alone. Retirement-linked support combined with an early coal charge raises welfare by 1.07% relative to that benchmark and induces 0.0317 TW of accelerated retirement without an aggregate capacity gap. Freezing the same realized support and charge paths removes almost all accelerated retirement, identifying a behavioral contribution from the link. The advantage is conditional: it disappears under zero continuation values, and declining clean-capacity credits can reverse fixed-policy rankings. Wider support bounds also change the preferred instrument mix. The results identify how shared adjustment resources and dependable replacement capacity condition policy choice; the numerical rates are unestimated policy experiments for an existing portfolio, rather than national forecasts.

Authors

Publication Details

Journal
Journal of Cleaner Production
Published
2026-09-28
DOI
https://doi.org/10.1016/j.jclepro.2026.149581
Primary Topic
Electric Power System Optimization
Type
article
Field-Weighted Citation Impact
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article

Tax coal or subsidize clean capacity? A differential game of incumbent utilities’ energy transition

Meng Du, Yonghui Bi
Journal of Cleaner Production
Electric Power System Optimization
article

Tax coal or subsidize clean capacity? A differential game of incumbent utilities’ energy transition

Meng Du, Yonghui Bi
article en

Abstract

Electricity decarbonization requires both replacement investment and decisions about the remaining life of coal assets. This paper develops a Stackelberg differential-game benchmark with an incumbent utility that builds clean capacity and retires coal, and an independent clean developer. Binding organizational constraints make construction and closure substitutes; binding finance can instead make them complements when retirement releases net funds. Annual numerical experiments compare five policy classes using a common post-window continuation rule, incumbent-value limits and explicit capacity-gap ceilings. In the normalized China-scale baseline, the highest-welfare unconditional candidate found within the tested policy class coincides with clean support alone. Retirement-linked support combined with an early coal charge raises welfare by 1.07% relative to that benchmark and induces 0.0317 TW of accelerated retirement without an aggregate capacity gap. Freezing the same realized support and charge paths removes almost all accelerated retirement, identifying a behavioral contribution from the link. The advantage is conditional: it disappears under zero continuation values, and declining clean-capacity credits can reverse fixed-policy rankings. Wider support bounds also change the preferred instrument mix. The results identify how shared adjustment resources and dependable replacement capacity condition policy choice; the numerical rates are unestimated policy experiments for an existing portfolio, rather than national forecasts.

Journal of Cleaner ProductionVol. 578
Industry, innovation and infrastructure
Openalex Percentile: Top 22%
Electric Power System Optimization
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