Optimal decisions for competitive manufacturers under carbon tax and cap-and-trade policies

Abstract

With the gradual increasing of deepening of people's understanding of sustainable development, governments and enterprises have come to attach great importance to carbon emissions. Cap-and-trade (C&T) and carbon tax policies are widely regarded as two effective mechanisms for reducing carbon emissions. In this paper, considering consumer environmental awareness (CEA), we study the carbon emission reduction (CER) of two competitive manufacturers given the carbon tax and C&T policies. The two manufactures have two competitive behaviors: Cournot and Collusion. Four models are respectively constructed for different behaviors and policies, and the optimal decisions are obtained. Furthermore, comparison of the optimal solutions and parametric sensitivity analysis are discussed under two scenarios. The results indicate that the C&T policy is more sensitive to CEA than is the carbon tax policy. When manufacturers improve the efficiency of CER, compared with carbon tax policy, the C&T policy can more effectively curb carbon emissions, improve social welfare, and enhance the competitiveness of manufacturers. The fiercer CER competition leads to lower emissions and social welfare but higher total carbon emissions. The manufacturers' collusion behavior cannot make them achieve a win–win situation.