Abstract: In order to achieve the reduction in greenhouse gases committed in the Kyoto Protocol, countries must establish control policies and encourage industries to reduce their emissions. Two main options arise in a cap and trade framework: (i) buying/selling emission allowances; and (ii) reducing emissions by investing in abatement technologies. In this context, each industry must choose the best strategy considering its particular features. This work proposes a systematic tool to assist decision-makers in the design of coal-fired energy production with carbon management in existing power plants. Our approach relies on a novel mixed integer non-linear program (MINLP) that minimizes the cost of electricity (COE) for a given price of CO2 allowance on the trade market. We demonstrate the capabilities of this MINLP through a case study that addresses the retrofitting of a coal-fired power plant. Results show that the price of the CO2 allowance on the market that effectively induce the investment in carbon capture falls in the range 22-30 $/tCO2eq depending on the quantity of allowances distributed for free. In this solution, carbon capture is accomplished by implementing the oxy-fuel combustion technology (which is preferred to the post-combustion capture using monoethanolamine as solvent).

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