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Allocation policy considering firm’s time-varying emission reduction in a cap-and-trade system

Author

Listed:
  • Shaofu Du

    (University of Science and Technology of China)

  • Yujiao Zhu

    (University of Science and Technology of China)

  • Yangguang Zhu

    (Hefei University of Technology)

  • Wenzhi Tang

    (Hefei University)

Abstract

The global warming problem has attracted worldwide attention. Cap-and-trade has been increasingly used in many countries to reduce carbon emissions. However, some firms are concerned about the additional costs required for carbon reduction, and another important concern comes from grandfathering in permit allocation. This paper incorporates these costs and cap-and-trade concerns into a multi-period carbon reduction problem in a Stackelberg game. The findings show that neither cap-and-trade nor the firm’s carbon reduction choice will always benefit the environment. From the government’s perspective, we identify the optimal grandfathering scheme to maximize social welfare that incorporates economic and environmental concerns. We demonstrate that the socially optimal emissions level depends on the level of low-carbon technology and the environmental recovery cost.

Suggested Citation

  • Shaofu Du & Yujiao Zhu & Yangguang Zhu & Wenzhi Tang, 2020. "Allocation policy considering firm’s time-varying emission reduction in a cap-and-trade system," Annals of Operations Research, Springer, vol. 290(1), pages 543-565, July.
  • Handle: RePEc:spr:annopr:v:290:y:2020:i:1:d:10.1007_s10479-017-2606-0
    DOI: 10.1007/s10479-017-2606-0
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    Cited by:

    1. Longfei He & Qinxu Gu & Junsong Bian & Kin Keung Lai & Xiao Zhang, 2023. "To Pool or Not to Pool in Carbon Quotas: Analyses of Emission Regulation and Operations in Supply Chain Supernetwork under Cap-and-Trade Policy," Annals of Operations Research, Springer, vol. 324(1), pages 311-353, May.
    2. Liangjie Xia & Yongwan Bai & Sanjoy Ghose & Juanjuan Qin, 2022. "Differential game analysis of carbon emissions reduction and promotion in a sustainable supply chain considering social preferences," Annals of Operations Research, Springer, vol. 310(1), pages 257-292, March.
    3. Miaomiao Tao & Pierre Failler & Lim Thye Goh & Wee Yeap Lau & Hanghang Dong & Liang Xie, 2022. "Quantify the Effect of China’s Emission Trading Scheme on Low-carbon Eco-efficiency: Evidence from China’s 283 Cities," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(6), pages 1-33, August.
    4. Jinjin Liu & Hua Ke & Yuan Gao, 2022. "Manufacturer’s R &D cooperation contract: linear fee or revenue-sharing payment in a low-carbon supply chain," Annals of Operations Research, Springer, vol. 318(1), pages 323-355, November.

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