Modeling Study On Competitive Firms’ Emissions Abatement And Pricing Decisions Under Bilateral Carbon Constraints

As the main contributors to carbon emissions,firms play an important role in achieving national emissions abatement targets and mitigating global climate change.However,facing various carbon constraints from the policy and market environment,firms may take different responding strategies.To carry out effective policy instruments for leading firms’ appropriate emissions abatement behaviors,it is essential to study carbon-constrained firm decisions from a micro perspective.Currently,the theoretic framework for studying carbon-constrained firm decisions has not formed yet.The uncertain factors and multi-factor interactions arised from real cases remain to be further studied.Constructing firms’ operational decision models under various carbon constraints and analyzing the joint impacts of the primary carbon constraints on competitive firms’ emissions abatement behaviors may have great significance to both low-carbon operations management and low-carbon policy design.This paper carries out systematic study on carbon-constrained firm decisions.Focusing on the two primary carbon constraints,i.e.,carbon emissions trading scheme and consumer carbon awareness,this paper constructs a set of emissions abatement and pricing game models for competitive firms.Through the modeling study,this paper tries to answer the following questions:How would firms behave differently under the emissions trading scheme and consumer carbon awareness? What are the joint impacts and interactive effects of the carbon price and the consumer carbon awareness level on the firms’ emissions abatement behaviors and economic performance?How should the government apply these two levers to induce firms’ appropriate abatement behaviors?Firstly,this paper systematically reviews the firms’ carbon constraints,carbon-constrained business strategies and operational decision models.Based on the systematic review,a conceptual framework for carbon-constrained firm decision analysis is proposed.Generally,the carbon constraints faced by firms are categorized into three main categories: policy-driven,market-driven,and nature-driven.The carbon-constrained business strategies are classified into three main groups:independent abatement,collaborative abatement,and carbon compensation.The focus of the carbon-constrained operations models evolves from short-term to long-term strategies,from internal to collaborative abatement strategies,and from simple to more practical models.The proposed systematic conceptual framework consists of recognizing carbon constraints,choosing business strategies and making operational decisions.Secondly,this paper constructs two-stage abatement and pricing game models for duopolistic firms under unilateral carbon constraint of carbon emissions trading or consumer carbon awareness.The analytical equilibrium results are obtained through backward inductions and optimization theories,and the firms’ emissions abatement and pricing strategies are then compared.It is found that a firm’s emissions abatement effort is proportional to the carbon price,the consumer carbon awareness level,and the reciprocal of its abatement cost coefficient.With the increase of carbon price,firms tend to raise product prices for passing part of the emissions costs and abatement costs to consumers.With the increase of consumer carbon awareness level,firms tend to first cut down product prices for compensating consumers’ aversion towards carbon emissions,and then switch to abate carbon emissions proactively while passing the emissions abatement costs to consumers.Thirdly,this paper constructs a two-stage abatement and pricing game model for duopolistic firms under bilateral carbon constraints of carbon emissions trading and consumer carbon awareness.The joint impacts of carbon trading price and consumer carbon awareness level on the firms’ emissions abatement efforts,product prices,and equilibrium profits are explored through comparative static analysis of the equilibrium results.It is found that the carbon price and the consumer carbon awareness level together have an additive effect on a firm’s emissions abatement effort,but have different implications for the firms’ prices and profits.From both the consumers’ and the firms’ standpoints,an appropriate emissions abatement strategy for the central planner is to first push up the carbon price and then promote the consumer carbon awareness level.Such a strategy provides sustaining incentives for firms to invest in carbon abatement activities without causing drastic changes to product prices and firm profits.Lastly,this paper extends the duopolistic models to the monopolistic competition market which consists of multiple firms.Through numerical study and sensitivity analysis of the equilibrium results,the impacts of competition intensity are discussed.It is found that the competition intensity has no influence to the additive effect of carbon trading price and consumer carbon awareness level on a firm’s emissions abatement effort,but imposes impacts on the firms’ prices and profits.In general,the impacts of the raise in carbon price on firms’ prices and profits are relatively mild for different competition intensities,while the raise in consumer carbon awareness level may cause drastic increase in product prices when the competition intensity is low,and lead to drastic decrease in firm profits when the competition intensity is high.Therefore,raising carbon price may be a better policy choice than promoting consumer awareness for the central planner who aims at reducing carbon emissions in various industries with different competition intensities.