Enterprise Production and Emission Reduction Strategy under Carbon Emission Constraint

According to China’s 14th Five-Year Development Plan, China aims to peak its carbon emissions by 2030 and achieve carbon neutral by 2060, which will be a major strategy for China to implement in the coming period of time. All kinds of industries need to take the industry characteristics into account and gradually form relative carbon reduction targets according to the National Carbon Summit Action Program. Under the constraints of carbon emission reduction, enterprises face trade-off when making emission reduction decisions. How to systematically optimize the profitable and environmentally friendly decisions, under the consideration of carbon emission production, is gradually becoming a main concern of regulated enterprises. In this paper, a Cournot game model is constructed to explore optimal production carbon abatement decisions for two oligopolistic firms, under the governance of a cap-and-trade mechanism. Real case data collected from China’s airlines is an example to test the validity of our model. The qualitative analysis shows that, through a reasonable output and emission reduction investment, companies are capable of efficiently minimizing the negative impact brought about by the carbon trading system. A numerical experiment indicates that the companies on one side can reach a decision equilibrium in some circumstances, but on the other side, there exists a lack of incentive to reduce their emissions. Additional government incentives or increased investment in technological improvements will be needed to encourage companies to further reduce carbon emissions. In this paper, while analyzing the choice of emission reduction strategy for enterprises under the carbon trading system, it also provides effective emission reduction approaches for the government and industry managers, hoping to provide some references for the establishment of emission reduction system and policy formulation.