Pricing and emission reduction strategies: competition between carbon capture, utilization, and storage and autonomous emission reduction technologies

Xiao-Xue Zheng, Wen-Qian Xie, Fu Jia and Ying Yang

International Journal of Production Research, 2025, vol. 63, issue 22, 8496-8520

Abstract: Faced with environmental pressures and Cap-and-Trade Policies (CTP), some manufacturers adopt Carbon Capture, Utilisation, and Storage (CCUS), while others use Autonomous Emission Reduction (AER) technologies. Unlike AER, which prevents emissions at the source, CCUS captures carbon post-emission and sells it to suppliers to enhance feedstock productivity. This alters firms' cost-benefit structures and strategic behaviours. We construct a Bertrand-Stackelberg model involving a CCUS manufacturer, an AER manufacturer, and a supplier to explore how cost efficiency, carbon utilisation, and CTP affect supply chain outcomes. An unexpected finding is that reducing the CCUS cost coefficient not only increases its own capture efforts but also indirectly boosts the AER manufacturer's emission reduction. This occurs because higher carbon utilisation encourages the supplier to reduce wholesale prices, benefiting both manufacturers. When the supplier purchases a large share of carbon, it should monitor the CCUS manufacturer's capture status (partial or complete) to flexibly adjust wholesale prices. However, while higher carbon prices may stimulate greater capture, they can also reduce profits, environmental outcomes, and social welfare under certain conditions. This highlights the need for policy regulators to balance carbon pricing to avoid a scenario where firms, the environment, and society all suffer.

Date: 2025
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DOI: 10.1080/00207543.2025.2526725

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