Dynamic Carbon Emission Management

Maria Cecilia Bustamante and Francesca Zucchi

No 21300, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Carbon regulation poses the corporate challenge of developing optimal carbon management policies. We provide a unified model characterizing how firms manage emissions through production, heterogeneous green investment, and the trading of carbon credits. We show that carbon pricing incentivizes firms to reduce emissions through immediate yet transient abatement projects, but has an ambiguous impact on green innovation. In economies where carbon pricing discourages innovation, subsidies to green innovation complement — rather than substitute — carbon pricing, jointly lowering current emissions through abatement projects and accelerating the transition to greener technologies through innovation.

JEL-codes: D62 G12 G30 G31 O33 (search for similar items in EconPapers)
Date: 2026-03
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