Optimal behavior of environmental regulations to reduce carbon emissions: A simulation-based dual green gaming model

Abstract

As carbon emissions are one of the major problems of an emission-generating firm (EGF), there is a dire need to reduce them, and so this study fills this gap in the literature by considering the optimal behavior of environmental policies. This research develops policy measures under a duopoly game model such as carbon emission tax (CET) and subsidy on green investment (SGI). Additionally, we formulate a simulation model to measure the optimal behavior of CET, SGI, and production quantity to maximize profit and carbon emission reduction. The findings indicate that when green investment decreases, the EGFs are better able to pay CET and the government is also capable of providing SGI. Moreover, a lower unit production cost reduces more carbon emissions versus a higher unit production cost. In this way, the government receives revenue due to CET implementation and an EGF obtains revenue due to SGI. Both parties gain benefits at the same time and play important roles in cutting carbon emissions to make the environment clean. This study helps governments in finding their own optimal CET and SGI. An optimal SGI assists decision-makers at reducing carbon emissions and targeting profit maximization.

Keywords: Carbon emission; Dual green gaming; Industrial sector; Optimal green policies.