Impact of financial policies with carbon emission limits on capital-constrained manufacturers: Interest discount loan versus credit guarantee loan

Many small manufacturers face capital constraints in low-carbon product research and development. Although the government has introduced various financial support policies, the impact of financial policies with carbon emission limits on capital-constrained manufacturers has not been explored effectively. This study examines the effects of two government financial policies: interest discount loan (IDL) and credit guarantee loan (CGL). Under IDL, manufacturers must ensure compliance with government-set emissions limits. Under CGL, manufacturers are penalized for excessive carbon emissions. Our findings indicate that IDL may fail under high carbon emission caps, whereas CGL may fail under both high and low carbon emission caps. Moreover, when production quantities are high under IDL, the associated revenues of manufacturers are lower than those under CGL. Subsequently, the study expands the policy effects under combinations of financial policies (IDL and CGL) and subsidy policies (based on carbon emission reduction investments and product sales quantities), revealing that the combination scheme based on product sales quantities may increase government revenue, whereas the combination scheme based on carbon emission reduction investments does not increase revenue. Ultimately, we examine the conditions under which the manufacturer and government have either the same or different preferences for single or combination schemes, providing useful insights for practitioners when designing financial policies.