A dynamic multi-objective optimization model for inner-industry carbon responsibility allocation based on carbon tax and carbon offsets accounting

The setting of Intergovernmental Panel on Climate Change (IPCC) raises concerns on curbing the excessive carbon emissions, and European Union (EU) has been proactively attempting “green” initiatives striving to achieve carbon neutrality. The current Carbon Border Adjustment Mechanism (CBAM) only works on short-term carbon reduction without much “greenness” investment incentives so far, and few studies focus on the long-standing inner-industrial carbon reduction coordination. To address these issues, this paper creatively presents a dynamic multi-objective carbon responsibility allocation model (CRAM) for EU carbon market, allows the carbon trade with a taxation based on carbon offsets accounting, and considers the final targets of sustainable “greenness” investment incentives. To find the optimal results of the designed dynamic CRAM, an improved KT-NSGA-II algorithm is proposed to detect the Pareto frontiers of each successive periods. Data from EU Cement and Aluminium industries are then selected for empirical analysis to compare the proposed CRAM to conventional CBAM model. The findings demonstrate that the superiority of CRAM in carbon emissions reduction, economic benefits improvement and green invests encouragement. With the adjustment of the inner-industrial carbon allowance trade, total carbon emissions decreased by 28.03% and the “greenness” investment initiative increased by 39.24% in contrast to the CBAM. The sensitivity analysis of the model also provides suggestions on the settings of carbon quota and tax with different industrial production process, and proposes policy recommendations for CRAM implementation.