Production Strategy and Technology Innovation under Different Carbon Emission Polices

Abstract

Given that the production process in the manufacturing industry is a significant contributor to carbon emissions, many governments have implemented carbon emission-related policies to incentivize manufacturers to optimize their production process or invest in green production technology, with the aim of reducing their carbon footprint. Therefore, it is necessary to determine the effectiveness of carbon policies considering manufacturers always tend to prioritize economic profits in their actual operations. We compare the effects of three different carbon emission policies—carbon tax, cap-and-trade, and intensity target—on manufacturers’ production strategies and technology innovation investments, which include production and carbon emission quantities, price of goods and emission permit, and technological innovation of the production improvement and the emission abatement. The study results show that the intensity target policy increases the carbon market price and decreases the carbon emission rate. For the manufacturers with higher (lower) initial emission intensity, intensity target policy induces them to decrease (increase) production quantities and carbon emission quantities. For the technology innovation choice, cap-and-trade induces more incentive on production improvement technology innovation for manufacturers with lower initial emission intensity and carbon emission abatement technology innovation for manufacturers with higher level initial emission intensity.