  In this paper we study a pollution regulation problem in an electricity
market with a network structure. The market is ruled by an independent system
operator (ISO for short) who has the goal of reducing the pollutant emissions
of the providers in the network, by encouraging the use of cleaner
technologies. The problem of the ISO formulates as a contracting problem with
each one of the providers, who interact among themselves by playing a
stochastic differential game. The actions of the providers are not observable
by the ISO which faces moral hazard. By using the dynamic programming approach,
we represent the value function of the ISO as the unique viscosity solution to
the corresponding Hamilton-Jacobi-Bellman equation. We prove that this solution
is smooth and characterise the optimal controls for the ISO. Numerical
solutions to the problem are presented and discussed. We consider also a
simpler problem for the ISO, with constant production levels, that can be
solved explicitly in a particular setting.
