The effect of carbon tariffs and the associated coping strategies: A global supply chain perspective

Abstract

Carbon regulation differences are the main obstacle to global carbon emissions reductions. To alleviate the global environmental pressures from carbon emissions, high-carbon-regulated countries are seeking to impose carbon tariffs on imported products. In response, low-carbon-regulated countries can choose to allocate carbon quotas on manufacturers (H strategy) or provide subsidies to reduce their emissions reduction costs (S strategy). Therefore, it is worth exploring the joint impact of carbon tariffs and the associated coping strategies. In this context, this paper explores optimal manufacturing production and emissions reductions, analyses the impact of carbon tariffs on carbon emissions and social welfare, and examines strategy selection in low-carbon regulated countries. It is found that both the production and profits for manufacturers with relatively low carbon emissions reduction costs can increase with carbon tariffs. When a carbon tariff is fixed, the response strategy in low-carbon-regulated countries can either increase or decrease global carbon emissions. Carbon tariffs always have a negative impact on the social welfare of low-carbon-regulated countries. Interestingly, carbon tariffs may also harm the social welfare of high-carbon-regulated countries, especially when their manufacturers have high emissions reduction costs. Finally, as for social welfare in low-carbon-regulated countries, high-carbon-regulated countries, and the global community, both H and S strategies can be win-win strategies when emissions reduction cost subsidies are moderate. However, when emissions reduction cost subsidies are high, H strategy is found to be a win-win strategy.