Impact of carbon capture and storage, cap-and-trade, and multiproduct cost structure on pollution in an oligopoly

Shi Chen, Xiaoyu Duan, Jyh-Horng Lin and Ching-Hui Chang

Energy Economics, 2024, vol. 137, issue C

Abstract: This paper presents an oligopolistic model to examine the effects of cap-and-trade regulations, carbon capture and storage (CCS), and multiproduct cost structures on reducing pollution emissions. It investigates an oligopoly consisting of both carbon-intensive and environmentally friendly manufacturers that produce goods and pollutants concurrently. The findings suggest that in a quasi-competitive or Cournot-type conjectural variation (CV), a tighter cap leads to increased pollution from the carbon-intensive manufacturer but decreased pollution in a collusive CV. Moreover, this stricter cap notably diminishes the equity of the carbon-intensive manufacturer in a collusive scenario and that of the green manufacturer in a quasi-competitive environment. When the green manufacturer adopts advanced CCS technology or operates with a subadditive cost structure, pollution from the carbon-intensive manufacturer decreases in quasi-competitive and collusive scenarios but increases under Cournot-type CV. Meanwhile, the green manufacturer experiences the greatest equity boost with advanced CCS technology in collusive settings, while its equity decreases most significantly with a subadditive cost structure in quasi-competitive CV. Our contribution indicates that the efficacy of climate policies in oligopolies depends on both multiproduct cost structures and CVs employed.

Keywords: Cap-and-trade; Carbon capturer and storage; Conjectural variation; Multiproduct cost; Pollution (search for similar items in EconPapers)
JEL-codes: D43 Q52 Q54 Q56 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:137:y:2024:i:c:s014098832400481x

DOI: 10.1016/j.eneco.2024.107773

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