Two-sided matching and game on investing in carbon emission reduction technology under a cap-and-trade system

Abstract

Curbing carbon emissions has been a hot topic of public concern around the world. Although the Cap-and-Trade (C&T) system has excellent environmental performance, its effectiveness in achieving low-carbon emissions objectives is not enough. Practices show that carbon emission reduction technology (CERT) investment by micro-manufacturers can make up this limitation. In the context of C&T system, this paper develops a dual-objective non-linear programing model of CERT investment strategies based on matching game between the oligopolistic manufacturers (oligo-manufacturers) and suppliers. Maximum production capacity (MPC) of oligo-manufacturer is considered. A matching game mechanism of bilateral stakeholders is proposed with consideration of vertical and horizontal aspects. From the vertical aspect, there is a matching analysis between a finite number of oligo-manufacturers (offering investment funds) on one side and a finite number of suppliers (providing CERTs) on the other side. From the horizontal aspect, there is Cournot game among the oligo-manufacturers. The model proposed in this paper enriches the literature on the selection process of CERT investment strategies. The impacts of oligo-manufacturer amount, green investment coefficient and carbon price on the investment-production decision-makings are finally analyzed by numerical methods. The results show that stable matching outcomes (i.e., the optimal joint production quantity, CERT investment intensity, emission reduction and emission trading quantity) can be obtained by constructing the Lagrange function and solving Karush-Kuhn-Tucker (KKT) conditions. This means that the matching game mechanism helps optimize the CERT investment and production mode. In addition, intense competition among oligo-manufacturers is conducive to reducing carbon emissions. A higher carbon price leads to a higher economic profit, and a higher green investment coefficient leads to a lower carbon emission objective. MPC acts as a drag on development of the oligo-manufacturer, which can be used to improve the profit structure of stakeholders within a certain scope.