To Be or Not to Be? Strategic Analysis of Carbon Tax Guiding Manufacturers to Choose Low-Carbon Technology

Abstract

This paper analyzes the environmental tax’s effect on manufacturers’ choice of low-carbon technology in competitive supply chains. The existing studies only consider a single oligopoly enterprise and ignore the competition between supply chains. Few papers study the manufacturer’s technology choice under the carbon tax policy in the competitive supply chains, especially investigating the factors influencing the technology choice, including the market volume, and technology carbon emission reduction efficiency because different industry sectors have their distinctive carbon emissions reduction efficiencies and facing the different market volume. The study adopts a game theoretical approach, including the three-level supply chain consisting of the regulator, the manufacturers, and the retailers. A high carbon tax does not always help firms choose low-carbon technology. However, the monotonous effect of the carbon tax on manufacturer technology selection is no longer valid if the market volume and the carbon-reducing efficiency are considered. When the market volume is large, the regulator can set a high carbon tax to induce the manufacturers to choose low-carbon technology. We identify cases where the manufacturers are caught in a prisoner’s dilemma. When the market volume is small, and the carbon-reducing efficiency is high, the competitive manufacturers adopt the common technology. However, if the regulator increases the carbon tax, the manufacturers acquire the differential technology strategic choice, which is the Pareto optimal. We also extend the base model to the imperfect substitutable Cournot model and the Bertrand model to check the robustness and find our main results still hold in these extensions.