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Implications of a cap‐and‐trade system for emission reductions under an asymmetric duopoly

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  • Zi‐rui Chen
  • Pu‐yan Nie

Abstract

Climate change is a global problem causing wide concern and requiring workable solutions. The cap‐and‐trade system is recommended as a workable mechanism to reduce the emissions of enterprises and a popular policy affecting production and the environment. This article considers market power and studies the effects of a cap‐and‐trade system on the performance of companies and environmental protection under an asymmetric duopoly. A two‐step model was established to analyze the outputs, prices, and emission under the cap‐and‐trade system. The result indicates that the cap‐and‐trade system has significant implications for cleaner production. More precisely, the optimal emission cap is feasible with the function of social welfare. Both a low emission cap and high emission trading price are beneficial for promoting the development of sustainability. Moreover, the market value of the cap‐and‐trade system offers a huge incentive to companies emitting carbon dioxide. In particular, inefficient firms have a greater stimulus than efficient ones to reduce emissions to economize the cost of production. In summary, the cap‐and‐trade system makes a great contribution to the development of smart business.

Suggested Citation

  • Zi‐rui Chen & Pu‐yan Nie, 2020. "Implications of a cap‐and‐trade system for emission reductions under an asymmetric duopoly," Business Strategy and the Environment, Wiley Blackwell, vol. 29(8), pages 3135-3145, December.
    • Handle: RePEc:bla:bstrat:v:29:y:2020:i:8:p:3135-3145
    DOI: 10.1002/bse.2562
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    2. Patanjal Kumar & Suresh Kumar Jakhar & Arijit Bhattacharya, 2021. "Two‐period supply chain coordination strategies with ambidextrous sustainable innovations," Business Strategy and the Environment, Wiley Blackwell, vol. 30(7), pages 2980-2995, November.
    3. Changhong Li & Jialuo Wang & Jiao Zheng & Jiani Gao, 2022. "Effects of Carbon Policy on Carbon Emission Reduction in Supply Chain under Uncertain Demand," Sustainability, MDPI, vol. 14(9), pages 1-20, May.
    4. Zheng Liu & Wenzhuo Sun & Bin Hu & Chunjia Han & Petros Ieromonachou & Yuanjun Zhao & Jiazhuo Zheng, 2023. "Research on Supply Chain Optimization Considering Consumer Subsidy Mechanism in the Context of Carbon Neutrality," Energies, MDPI, vol. 16(7), pages 1-14, March.

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