Study On The Optimal Policy Design In Carbon Market And Firm’s Production Decision

Global warming has become an irreversible trend all over the world, whichis a threat to human beings, and it will be a huge challenge to human’s survivaland development. Carbon dioxide(CO2), as a kind of human-caused greenhousegas (GHG), has been doubtlessly taken as the most critical factor inducing theglobal warming. So, it’s significant to study the government designs the carbonreduction mechanism for promoting firms to reduce CO2emissions.Firstly, we build an optimal control model to maximize the firm’s profits, andanalyze the firm’s optimal production decision under benchmark and three difer-ent exogenous abatement policies: the carbon tax policy, the carbon constraintspolicy, and the hybrid policy of carbon tax and carbon constraints. The resultsindicate that the efectiveness of CO2emissions reduction under the hybrid policyis best in these three exogenous abatement policies. But, the output decreasesmore under the hybrid policy than other two polices. And then one numericalexample is given to illustrate the efectiveness of these proposed models.Secondly, we build a dynamic Stackelberg game model to maximize the firm’sprofits and the government’s utility, and analyze the government’s optimal designof dynamic carbon tax and the firm’s optimal production and CO2emissionreduction investment decisions under the dynamic carbon tax, and then we applythe maximum principle in optimal control theory to solve the model. The resultsindicate that carbon tax decreases with time increasing, and the carbon tax isefective to promote the firm to reducing CO2emissions. If the firm makes theinvestment to reduce CO2emissions under the dynamic carbon tax policy, thefirm’s profits will be improved. And then one example about Tianjin electricmarket is given to illustrate the efectiveness of these results.