Impact of carbon misreporting on renewable energy investment strategies of regulated power enterprises under cap-and-trade mechanism

In the context of carbon regulation, power enterprises (PEs) may engage in carbon misreporting to decrease apparent emissions and increase economic performance. This study builds a model to assess how misreporting affects renewable energy investment (REI) decisions under two allocation mechanisms: the total carbon quota (TCQ) mechanism and the unit carbon quota (UCQ) mechanism. By analysing the equilibrium solutions of both models, the following conclusions are obtained: (1) Compared with the TCQ mechanism, the UCQ mechanism provides a stronger incentive for REI; (2) When unit carbon quotas are large, the total power demand under the UCQ mechanism exceeds that under the TCQ mechanism. In contrast, when total carbon quotas are large, the TCQ mechanism yields greater profits than those under the UCQ mechanism; (3) Greater misreporting yields larger benefits for high-emission enterprises. However, increased misreporting becomes detrimental for low-emission enterprises.