Interaction between product strategy selection and the carbon quota allocation policy

Area of Science:

• Environmental Economics
• Industrial Organization
• Public Policy

Background:

• The interplay between governmental carbon reduction policies and corporate product strategies remains underexplored.
• Cap-and-trade schemes are key environmental policy tools, but their impact on firm-level strategic decisions requires further investigation.

Purpose of the Study:

• To analyze the interaction between government carbon quota allocation policies and firm product strategies.
• To determine optimal government policies for maximizing social welfare considering firm responses.

Main Methods:

• Development of a theoretical model to simulate firm and government decision-making.
• Analysis of firms' strategic choices between low-carbon and ordinary products under different policy scenarios.
• Examination of government policy optimization based on firm behavior and social welfare outcomes.

Main Results:

• Firms tend to adopt low-carbon product strategies when carbon quotas are designed to directly reduce total emissions.
• A firm's choice between product strategies is contingent on the broader impact of carbon emissions when quotas aim for social welfare optimization.
• Governmental optimal carbon quota allocation policies are contingent upon the specific product strategies adopted by firms.

Conclusions:

• Government carbon policies significantly shape corporate product strategies, influencing environmental outcomes.
• Tailoring carbon quota allocation to either direct emission reduction or social welfare maximization elicits different firm responses.
• Effective environmental policy design requires considering the strategic behavior of firms to achieve optimal social welfare.