Research on Company Strategy Under Green Technology Investment in the ‘cap-and-trade’ System

Abstract

In this paper, we will analyze the firm’s strategies (production strategy, carbon trading strategy and green technology investment). In the 'cap-and-trade' system, we take green technology investment into account. We draw the conclusion that the firm may carry out the green technology investment in the 'cap-and-trade' system, and it has the optimal amount of green technology investment, as well as the maximum expected profit and it’s carbon emissions. It proven that the 'cap-and-trade' system can encourage the firms to invest the green technology thus reducing carbon emissions. Additionally, the higher the carbon price is the higher the unit emission reduction rate is, and the higher the unit emission reduction rate is, the fewer the products are made. What’s more, the total profit is proportional to the carbon emission caps. Finally, we do the sensitivity analysis, and discuss the impact of parameters’ changes on production, green technology investment and carbon emissions.
Key words: Cap-and-trade; Emission cap; Strategy; Green technology investment