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Abstract. This paper researches the power generation enterprises' generation output and emission reduction decisions. The study finds that the output of polluting power generation enterprise is higher than which of the clean power generation enterprise due to low power generation cost in case of without cap-and-trade regulation, the output of the clean power generation enterprise is possible higher than which of the polluting power generation enterprise no matter whether the enterprises invest in emission reduction under the cap-and-trade scheme, the output will be higher while enterprises invest in emission reduction under the cap-and-trade scheme. Carrying out the cap-and-trade regulation is in favor of carbon emissions reduction.