The effect of the carbon tax on the low-carbon level under different market powers

In this paper, we establish a Stackelberg game model between the government and industries with different market powers under the government’s implementation of a carbon tax regulation policy. Using game theory and optimization methods, we explore the ways in which enterprises in industries with different degrees of market power should exhibit optimal low-carbon production behavior and in which the government should set the optimal carbon tax rate under the combination of four strategies, analyzing how market power and the other parameters involved in the model affect corporate profits, market income and, consequently, social welfare. In addition, we identify at which market competition level the government implements carbon tax policy more effectively. We find that the government’s carbon tax policy is more effective in markets with a high degree of competition or low market power, which means that enterprises in the overall industry can choose a low-carbon strategy and transform to green and low-carbon production patterns. Furthermore, we discuss the influence of the parameters involved in the model on the optimal policy value. Through model analysis, the critical point of the state division of the government and the entire production enterprise system is obtained. Further static analysis of the critical point is carried out and finds that in addition to introducing new enterprises and increasing the competition degree in the original market to make the carbon tax policy more effective, the critical point can also be changed by increasing the product market capacity and emission reduction cost coefficient and reducing the unit production cost of the product and other measures to make the carbon tax policy more effective for more industries and further accelerate the green and low-carbon transformation of the whole society. Similarly, other low-carbon policies can be studied to identify which specific industries are more effective by using the same research framework as that in this paper. We hope that the results can provide some theoretical reference for the government's low-carbon policy-makers.