Independence or cooperation? Evaluating emission reduction strategies in non-competitive and competitive environments

Abstract

This study combines a dynamic game and the Nash bargaining model to discuss the choice of manufacturers’ emission reduction strategies independently or in cooperation with cleantech firms under the cap-and-trade mechanism. The models comprise one manufacturer and one cleantech firm in a non-competitive environment, and two manufacturers with different emission reduction capacities in a competitive environment. The results show that competition will produce significant substitution effects, and some sensitivity analyses of the disadvantaged manufacturer tend to be opposite to those under a non-competitive environment. On the contrary, cooperation will bring significant positive impacts, carbon reduction rates will be improved after cooperating with cleantech firms. However, when profits are concerned, the Nash equilibrium model (C, C) may fall into a prisoner’s dilemma choice, while cleantech firms with low technical improvement capacities can drive it to become a Pareto optimality strategy, which will cause false prosperity in the cleantech industry. Given this, the objective of carbon neutrality and the cooperation model with the same cleantech firm is further extended, showing effective cooperation and improvement to provide new perspectives into emission reduction strategies.