The impact of carbon price uncertainty on a multinational corporation’s operational decisions under the carbon border adjustment mechanism

The implementation of the Carbon Border Adjustment Mechanism (CBAM) aims to prevent carbon leakage and promote global emission reduction. Because the tariffs imposed under the CBAM are directly linked to the carbon price in the European Union Emissions Trading System (EU ETS), the high uncertainty of European Union (EU) carbon prices translates into tariff volatility, creating new challenges for multinational corporations (MNCs) in optimizing clean technology investment and production line planning. This paper develops a two-stage dynamic optimization model to examine an MNC’s clean technology investment decisions and production line planning choices under carbon price uncertainty. Based on whether a low or high EU carbon price is realized, we identify four distinct production line planning schemes for the MNC. The results indicate that, under the CBAM, the MNC with higher baseline emissions paradoxically chooses a lower level of carbon emission reduction, in contrast to findings in the absence of the CBAM. Furthermore, our analysis reveals that the effect of carbon price volatility on clean technology investment is non-monotonic and moderated by transition resistance. In addition, when transition resistance is high, the MNC adopting differentiated production line planning achieves multi-objective optimization of carbon emission reduction levels, profits, and consumer surplus, regardless of EU carbon price fluctuations. This study uncovers a novel mechanism in the operational decision-making of an MNC under the joint influence of the CBAM and carbon price uncertainty, providing theoretical support for policymakers in designing effective border carbon adjustment tools and for MNCs in formulating low-carbon transition strategies.