Enhancing demand response in coupled electricity and carbon markets: Optimising market signals and dispatch configurations

Decarbonisation goals have made the coupling of electricity and carbon markets (CMs) an inevitable trend, with demand response (DR) playing a key role in sustainable power systems (SPSs). However, its interaction with coupled markets remains unclear, particularly regarding market signals and dispatch configurations. This study develops an extended coupled market operation model to investigate DR mechanisms under different market signals, focusing on the roles of dispatch configurations such as dynamic carbon emission intensity (CEI) and intensity-based carbon market (ICM) coupling. Key findings: (1) Market signals and merit-order significantly impact DR effectiveness, but China's current generation portfolio fails to align emissions with marginal costs, limiting cost-emission synergy and overall efficiency. (2) ICM coupling and dynamic CEI reshape the merit-order, improving demand-side resource dispatch. Higher ICM coupling intensity strengthens price-emission correlation, enabling price-based DR (PBDR) to achieve optimal cost, environmental, and market efficiency outcomes. (3) The optimal market signal depends on the ICM benchmark rate rather than carbon price; when the benchmark reaches 0.6, PBDR significantly outperforms other schemes. This study provides insights for policymakers to refine incentive signals and improve market mechanisms, ensuring DR maximises both economic and environmental benefits in coupled electricity-carbon markets while enhancing system stability.