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Dynamic Carbon Emission Management

Author

Listed:
  • Bustamante, Maria Cecilia
  • Zucchi, Francesca

Abstract

Carbon regulation poses the corporate challenge of developing optimal carbon management policies. We provide a unified model characterizing how firms manage emissions through production, heterogeneous green investment, and the trading of carbon credits. We show that carbon pricing incentivizes firms to reduce emissions through immediate yet transient abatement projects, but has an ambiguous impact on green innovation. In economies where carbon pricing discourages innovation, subsidies to green innovation complement — rather than substitute — carbon pricing, jointly lowering current emissions through abatement projects and accelerating the transition to greener technologies through innovation.

Suggested Citation

  • Bustamante, Maria Cecilia & Zucchi, Francesca, 2026. "Dynamic Carbon Emission Management," CEPR Discussion Papers 21300, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21300
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    File URL: https://cepr.org/publications/DP21300
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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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