Emission-Dependent Production for Environment-Aware Demand in Cap-and-Trade System

Abstract

This paper focuses on the impact of ‘cap-and-trade’ mechanism and customer’s environmental awareness on emission-dependent manufacturer. Carbon emission cap from the perspective of government will be confirmed. In the ‘cap-and-trade’ system, emission permit becomes one of the key factors of production for emission-dependent firms. If the cap is insufficient to satisfy the target production, extra permit should be purchased via trading, otherwise, the remaining permit will be sold to other firms. Since the product demand has been influenced due to the consideration of customer environmental awareness, the production will be decided by analyzing the produced decision-making process of the emission-dependent firm in this case. Base on the consideration of improving environment benefits, carbon emission cap of this kind of manufacturer will be determined. Additionally, numerical analysis is considered. We found that it is profitable for the manufacturer investing; meanwhile, the emission intensity of this manufacturer is ameliorative. And emission reduction investment should be encouraged by the environmental administration in some way of preferential policy.