IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v142y2025ics0140988325000325.html
   My bibliography  Save this article

Downcycling in circular production through sustainable insurance under cap-and-trade regulation and carbon tariffs

Author

Listed:
  • Chen, Shi
  • Wang, Mengjie
  • Huang, Fu-Wei
  • Chang, Ching-Hui
  • Lin, Jyh-Jiuan

Abstract

This paper presents a contingent claim option model to explore downcycling in circular production under cap-and-trade regulations and carbon tariffs, within the context of sustainable insurance. By applying a capped call option, the model shows how a life insurer finances a manufacturer producing steel, slag, and pollutants, while explicitly assessing the manufacturer's risk under related climate policy regulations. The manufacturer under cap-and-trade regulations employs carbon capture, utilization, and storage (CCUS) to support downcycling in slag production while exporting steel and slag, subject to carbon and product tariffs. The findings reveal that increased downcycling enhances the manufacturer's equity but reduces economies of scope. On the other hand, higher carbon emissions lower both equity and economies of scope. A stricter cap in the cap-and-trade system improves equity and strengthens policyholder protection, while increased carbon and product tariffs negatively affect both. Thus, downcycling with CCUS and lower emissions is favorable for the manufacturer's equity. A stricter cap supports efforts to achieve SDG 7 (Affordable and Clean Energy), but carbon and product tariffs do not. For the insurer, a more stringent cap encourages sustainable insurance aligned with SDG 3 (Good Health and Well-Being), though higher tariffs diminish policyholder protection.

Suggested Citation

  • Chen, Shi & Wang, Mengjie & Huang, Fu-Wei & Chang, Ching-Hui & Lin, Jyh-Jiuan, 2025. "Downcycling in circular production through sustainable insurance under cap-and-trade regulation and carbon tariffs," Energy Economics, Elsevier, vol. 142(C).
  • Handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000325
    DOI: 10.1016/j.eneco.2025.108209
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988325000325
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.eneco.2025.108209?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Cap-and-trade; Carbon tariff; Circular production; Downcycling; Sustainable insurance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000325. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.