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

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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.

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Data availability

Data are available from the authors upon request.

Abbreviations

EGFs:

Emission-generating firms

GHG:

Greenhouse gases

C&T:

Cap-and-trade

CET:

Carbon emission tax

GI:

Green investment

SGI:

Subsidy on green investment

CER:

Carbon emission reduction

GDP:

Gross domestic product

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Funding

Chien-Chiang Lee is grateful to the Social Science Foundation of Jiangxi Province of China for financial support through Grant No: 21JL02.

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Authors and Affiliations

  1. School of Economics and Management, Nanchang University, Nanchang, Jiangxi, China

    Chien-Chiang Lee

  2. College of Finance and Economics, Nanchang Institute of Technology, Nanchang, Jiangxi, China

    Jafar Hussain

Authors
  1. Chien-Chiang Lee
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  2. Jafar Hussain
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Contributions

This work is prepared by Jafar Hussain under the supervision of Chien-Chiang Lee. Both authors have provided critical feedback and helped shape the research, analysis, and manuscript.

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Correspondence to Jafar Hussain.

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Communicated by Nicholas Apergis.

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Lee, CC., Hussain, J. Optimal behavior of environmental regulations to reduce carbon emissions: A simulation-based dual green gaming model. Environ Sci Pollut Res 29, 56037–56054 (2022). https://doi.org/10.1007/s11356-022-19710-0

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