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Transforming energy taxation policy: A dual cooperative game and stochastic frontier approach for sustainable transitions in Canada

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  • Hamidoğlu, Ali
  • Wang, Yuhao
  • Wang, Hao

Abstract

A successful energy transition demands more than simply raising carbon taxes—it requires smart incentives that align environmental goals with economic resilience. This study introduces a novel Conditional Government Carbon Tax Rebate (CGCTR), which offers carbon tax reductions conditional on firms increasing salaries and expanding their workforce, fostering a dual benefit across environmental and labor dimensions within a government–industry energy network. We develop an integrated modeling framework that combines stochastic frontier analysis (SFA) with a dual-layer cooperative game theory approach to assess and optimize CGCTR adoption under multiple tax relief scenarios. The SFA component uses a policy-sensitive, time-varying Cobb–Douglas production function with workforce and salary as inputs and a policy-induced productivity shift from carbon tax to estimate firm-level energy output and inefficiency integrated with environmental performance, classifying firms as fully efficient, efficient, and less efficient. Strategic interactions among these tiers are modeled through intra-group and inter-group cooperation, enabling the identification of cooperative equilibria that support the acceptance of CGCTR. A Canadian case study using historical financial and operational data illustrates the practical utility of the framework. Results reveal that CGCTR can induce cooperative behavior even among heterogeneous firms, leading to (1) stable policy equilibria, (2) increased energy production and decreased emission intensity, (3) improved workforce sustainability through hiring and wage dynamics, and (4) broader social welfare gains reflected in rising wage-based GDP, increased employment, and enhanced productivity. This framework offers a novel decision-support tool for governments seeking to design adaptive, efficiency-driven carbon tax policies that align environmental goals with economic viability.

Suggested Citation

  • Hamidoğlu, Ali & Wang, Yuhao & Wang, Hao, 2025. "Transforming energy taxation policy: A dual cooperative game and stochastic frontier approach for sustainable transitions in Canada," Energy, Elsevier, vol. 337(C).
    • Handle: RePEc:eee:energy:v:337:y:2025:i:c:s0360544225038940
    DOI: 10.1016/j.energy.2025.138252
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