Abstract: The Chinese government has already announced the target of reducing greenhouse gas emissions. The survey report denotes that China's carbon emissions are mainly derived from the energy industry, primarily coal. At present, coal-fired power generation capacity accounts for about 75% of the total generation capacity, and thermal power generation accounts for about 80% of the gross generation in China. Therefore, the implementation of carbon abatement policy in the power market is crucial to achieve the goal of China's carbon emissions goals. Currently, carbon abatement measures in power market can be divided into two categories:long term and short term measures. The short-term measures are to reduce carbon emissions through optimize carbon dispatching mechanism,and the long-term measures include developing the renewable energy (e.g. hydroelectric, wind power, photovoltaic, etc.), or upgrading the existing thermal power generator units to reduce carbon emissions per unit.
In fact, the generation of coal-fired power units is mainly determined based on its generation capacity, currently, and the carbon emission levels of generating units were neglected in China. Therefore, the generating units with high carbon emissions have no incentives to make investment in carbon abatement. In the other hand, most existing literatures are based on the assumption of mature carbon market. However, it may take some time to establish the real carbon market in China. Therefore, this paper establishes a framework aiming to minimize the power generation cost while satisfying carbon emissions constraints. Moreover, the carbon abatement investment model considering asymmetric carbon emission in oligopoly market was proposed based on the option game theory, to explore the carbon abatement investment strategy for naive and rational thermal power generation-companies, whose numerical analysis results show that, a) generation company's investment behaviours are largely affected by a threshold of feed-in tariff after the carbon abatement investment. When the feed-in tariff is lower than the threshold, only low emission generation-companies have the motives to make carbon abatement investment; when the feed-in tariff is higher than the threshold, high emission generation-companies will lead to the carbon abatement investment; only when feed-in tariff is equal to the threshold, two power generation-companies to invest carbon abatement at the same time. b) The threshold related to the parameters such as carbon emissions standards.

Key words: option game, carbon abatement investment, power market