Environmental and economic sustainability in pricing strategy of carbon tax: application of environmental Kuznets curve and real options approach

Abstract

The issue of global warming has become one of the serious factors affecting sustainable economic development with the dynamics of economic development interact with carbon emissions. The pricing strategy for carbon tax is one of the most feasible methods to achieve the goal of "net zero" in carbon emissions. This paper mainly discusses how the government prices carbon tax without affecting the target profit of the firms. This paper combines the dynamic real options approach (ROA) and the environmental Kuznets curve (EKC) to construct an economic model for the government to levy carbon tax. This paper goals the government how to levy carbon tax on industry to accelerate industrial transformation. Assume that the uncertain changes in the growth of the industry are dependent on the carbon tax, and the changes follow the geometric Brownian motion when carbon emissions change, the government imposes different carbon taxes on industry in order to control carbon emissions within a reasonable range. If industry reduces carbon emissions, the government will also reduce carbon tax. The threshold is the upper limit of the government's carbon tax on industry. In order to accelerate the industry investment in innovative clean energy technology and equipment, the threshold provides a reference basis for the government to impose carbon tax on industry and achieve a win-win strategy for economic development and environmental protection.