Implementation strategy and emission reduction effectiveness of carbon cap-and-trade in heterogeneous enterprises

Dazhi Linghu, Xinli Wu, Kee-Hung Lai, Fei Ye, Ajay Kumar () and Kim Hua Tan
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Ajay Kumar: EM - EMLyon Business School

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Abstract: In this research, a carbon emission reduction supply chain mechanism formed by government and enterprises is developed. Using a mixed game model, we study the impact of enterprise heterogeneity and social willingness-to-pay for environmental measures on the implementation strategy and effectiveness of cap-and-trade mechanism. The choice and effectiveness of the strategies are cross-influenced by the aforementioned two factors. The former has thresholds, which serve as a basic guarantee and adjustment; the latter is a key factor affecting government and enterprise decision-making and the fairness of the sharing of emission reduction responsibilities. The quotas allocation in compliance with the rule mainly affects the allocation of industry profits and consumers' active payment among enterprises, and is an effective tool for achieving two-way incentives. The difference between quotas and the voluntary reduction of emissions is the main reason for the surplus or shortage of quotas. We propose an emission reduction integration mechanism, which is based on the social willingness-to-pay for environmental measures, the difference of carbon emissions per unit and the quota allocation schemes, can avoid negative incentives and lack of fairness. The emission reduction mechanism can only reduce the loss of social welfare, but the government can launch appropriate emission reduction practices based on the conception of carbon neutrality to improve social welfare.

Keywords: Cap-and-trade; Incentive utility; Heterogeneity; Social willingness-to-pay for environmental measures; Voluntary reduction ratio (search for similar items in EconPapers)
Date: 2022-06-01
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Citations: View citations in EconPapers (4)

Published in International Journal of Production Economics, 2022, 248, 15 p

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04325560

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