Carbon Footprinting and Pricing Under Climate Concerns

Marco Bertini, Stefan Buehler, Daniel Halbheer () and Donald R. Lehmann
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Marco Bertini: ESADE - Ramon Llull University
Daniel Halbheer: HEC Paris
Donald R. Lehmann: Columbia University - Columbia Business School, Marketing

No 1344, HEC Research Papers Series from HEC Paris

Abstract: This article studies how organizations should design a product by choosing the carbon footprint and price in a market with climate concerns. The authors develop a model and first show how the cost and demand effects of reducing the product carbon footprint determine the profit-maximizing product design. They find that stronger climate concerns reduce the product carbon footprint, demand, the overall corporate carbon footprint and profit, but have an ambiguous impact on price. Next, the authors establish that offsetting carbon emissions can create a win-win outcome for the firm and the climate if the cost of compensation is sufficiently low. Going net zero leads to a win for society if the cost of offsetting is sufficiently low compared to the social cost of pollution created by the corporate carbon footprint. Third, the authors show how regulation in the form of a cap-and-trade scheme or a carbon tax affects product design, firm profitability, and green technology adoption. Finally, the authors extend the analysis to a competitive scenario and show that going net zero creates a win-win-win outcome for the firm, the climate, and society if the offset technology is sufficiently effective.

Keywords: Carbon footprint; carbon offsetting; climate impact; net-zero emissions; pricing (search for similar items in EconPapers)
JEL-codes: M30 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-08-19
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1344

DOI: 10.2139/ssrn.3411706

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