Carbon Regulatory Policy Influence On Enterprises Investment And Production To Reduce Emissions

With the highlight of global warming and other environmental issues, these are no doubt that the greenhouse gas has caused great harm to our living condition. The increasing demand for the development of low-carbon economy draws more scholars’ attention to the question about how the firms survive in the low carbon economy, and how the carbon regulation will affect their production and investment.Combined by real option theory and game theory, I build and analyze the effect of certain carbon regulation on firms’abatement investment and production. By the analysis of the effects of different uncertainties on firms’production in the complete competitive market and equilibrium in the competitive productive market, I draw the conclusion that the value of a firm depends not only on the current value of its future profit, but also on the value of real option embedded in the abatement investment. Moreover, the firm only invests when the observed variables cross the thresholds. Meanwhile, I also analyze the carbon leakage in the incomplete regulation market and simulate the scenario.The thesis is composed of seven chapters. The first chapter focused on the background and the structure of this thesis. In Chapter2,I reviewed related literature on the following four subjects:application of real value option to the value of firm; the effects of carbon regulation on firms’production; the effectiveness of varied carbon regulation policies and current results about the research on carbon leakage. In Chapter3, there is a brief introduction to the carbon regulations and their effectiveness. In Chapter4, a model is built to describe how the uncertainties affect the firm’s investment, production and its value in complete competitive market. In Chapter5,I improved the model built in Chapter4by introducing the assumption that the aggregate production will influence the price of the product, and get the equilibrium results of their game. Chapter6mainly focuses on the phenomenon called carbon leakage under incomplete regulation. Chapter7concludes.