Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax System
China has established a nationwide carbon quota trading market. Drawing upon international experiences and the strategic vision of the Chinese government, it is anticipated that China will soon incorporate a carbon tax system. The futurescape envisions a parallel progression of both the carbon mark...
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| Format: | Article |
| Language: | English |
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Bon View Publishing Pte Ltd.
2023-11-01
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| Series: | Green and Low-Carbon Economy |
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| Online Access: | https://ojs.bonviewpress.com/index.php/GLCE/article/view/1618 |
| _version_ | 1797268865499004928 |
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| author | Yu Chang |
| author_facet | Yu Chang |
| author_sort | Yu Chang |
| collection | DOAJ |
| description |
China has established a nationwide carbon quota trading market. Drawing upon international experiences and the strategic vision of the Chinese government, it is anticipated that China will soon incorporate a carbon tax system. The futurescape envisions a parallel progression of both the carbon market and the carbon tax system. This prompts an exploration into the circumstances where one should prioritize the carbon market system over the other, and vice versa. This paper constructs a repeated oligopoly game model to juxtapose equilibrium points under both carbon trading and tax regimes. Through rigorous analysis, it is discerned that under a duopoly with bounded rationality and inelastic pricing, if the carbon tax is set referencing the clearing price of the carbon market, then both the carbon trading and tax regimes can achieve identical emission reduction outcomes. Stemming from this revelation, for regions with established inelastic, oligopolistic carbon markets, it would be prudent to manage emission sources not included in the carbon market by setting a carbon tax in line with the market's clearing emission price. Furthermore, measures might be considered to dismantle such oligopolistic dominance to enhance emission reduction efficiency, or to transition from the carbon market to a tax regime for cost-efficient administration. For regions yet to embrace a carbon pricing mechanism, if there's an anticipation of forming an oligopolistic and inelastic carbon market, given the lower administrative costs, diminished enterprise operational risks, and broader coverage of the carbon tax regime, the region should gravitate towards the carbon tax system as a priority.
Received: 30 August 2023 | Revised: 30 October 2023 | Accepted: 12 November 2023
Conflicts of Interest
The author declares that he has no conflicts of interest to this work.
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| first_indexed | 2024-04-25T01:39:16Z |
| format | Article |
| id | doaj.art-b96c8630071646389a824625d39ee0ef |
| institution | Directory Open Access Journal |
| issn | 2972-3787 |
| language | English |
| last_indexed | 2024-04-25T01:39:16Z |
| publishDate | 2023-11-01 |
| publisher | Bon View Publishing Pte Ltd. |
| record_format | Article |
| series | Green and Low-Carbon Economy |
| spelling | doaj.art-b96c8630071646389a824625d39ee0ef2024-03-08T08:15:11ZengBon View Publishing Pte Ltd.Green and Low-Carbon Economy2972-37872023-11-0110.47852/bonviewGLCE32021618Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax SystemYu Chang0School of Business Administration, Zhongnan University of Economics and Law, China China has established a nationwide carbon quota trading market. Drawing upon international experiences and the strategic vision of the Chinese government, it is anticipated that China will soon incorporate a carbon tax system. The futurescape envisions a parallel progression of both the carbon market and the carbon tax system. This prompts an exploration into the circumstances where one should prioritize the carbon market system over the other, and vice versa. This paper constructs a repeated oligopoly game model to juxtapose equilibrium points under both carbon trading and tax regimes. Through rigorous analysis, it is discerned that under a duopoly with bounded rationality and inelastic pricing, if the carbon tax is set referencing the clearing price of the carbon market, then both the carbon trading and tax regimes can achieve identical emission reduction outcomes. Stemming from this revelation, for regions with established inelastic, oligopolistic carbon markets, it would be prudent to manage emission sources not included in the carbon market by setting a carbon tax in line with the market's clearing emission price. Furthermore, measures might be considered to dismantle such oligopolistic dominance to enhance emission reduction efficiency, or to transition from the carbon market to a tax regime for cost-efficient administration. For regions yet to embrace a carbon pricing mechanism, if there's an anticipation of forming an oligopolistic and inelastic carbon market, given the lower administrative costs, diminished enterprise operational risks, and broader coverage of the carbon tax regime, the region should gravitate towards the carbon tax system as a priority. Received: 30 August 2023 | Revised: 30 October 2023 | Accepted: 12 November 2023 Conflicts of Interest The author declares that he has no conflicts of interest to this work. https://ojs.bonviewpress.com/index.php/GLCE/article/view/1618carbon quotascarbon taxoligopolyrepeated game |
| spellingShingle | Yu Chang Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax System Green and Low-Carbon Economy carbon quotas carbon tax oligopoly repeated game |
| title | Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax System |
| title_full | Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax System |
| title_fullStr | Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax System |
| title_full_unstemmed | Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax System |
| title_short | Duopoly with Limited Rationality in Carbon Market: A Comparison of Carbon Quota Trading and Carbon Tax System |
| title_sort | duopoly with limited rationality in carbon market a comparison of carbon quota trading and carbon tax system |
| topic | carbon quotas carbon tax oligopoly repeated game |
| url | https://ojs.bonviewpress.com/index.php/GLCE/article/view/1618 |
| work_keys_str_mv | AT yuchang duopolywithlimitedrationalityincarbonmarketacomparisonofcarbonquotatradingandcarbontaxsystem |