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Investment strategy analysis of emission-reduction technology under cost subsidy policy in the carbon trading market

Qiang Hou (Shenyang University of Technology, Shenyang, China)
Jiayi Sun (Shenyang University of Technology, Shenyang, China)


ISSN: 0368-492X

Article publication date: 28 June 2019

Issue publication date: 23 January 2020



The authors consider a dynamic emission-reduction technology investment decision-making problem for an emission-dependent dyadic supply chain consists of a manufacturer and a retailer under subsidy policy for carbon emission reduction. The consumers are assumed to prefer to low-carbon products and formulate a supply chain optimal control problem.


The authors adopt differential game to analyze investment strategies of cost subsidy coefficient with respect to vertical incentive of a manufacturer and a retailer. A comparison analysis under four different decision-making situations, including decentralized decision-making, centralized decision-making, maximizing social welfare, is obtained.


The results show that the economic benefit and environmental pressure have a win–win performance in centralized decision-making. In four different game models, equilibrium strategies, profits and social welfare show changing diversity and have a consistent development trend as time goes on.

Research limitations/implications

The authors estimate the demand function is a linear function in this paper. According to the consumers’ preference to low-carbon products, consumer’s awareness meets the law of diminishing marginal utility like advertising goodwill accumulation. The carbon-sensitive coefficient might be a quadratic expression, which will complicate the problem and be consistent with reality.

Practical implications

It captures that there is a necessity to strengthen cooperation and exchange of carbon emission technology among the enterprises by simulation of different decision-makings when government granted cost subsidy.

Social implications

The results provide significant guidelines for the supply chain to make decision-makings of emission-reduction technology investment and relevant government departments to determine emission subsidies costs.


An endogenous subsidies coefficient is produced by the social welfare function. Distinguished from previous study, it also considered the influences of carbon emission trade policy and consumer preference.



This research was financially supported by Liaoning Education Department Fund (Grant No. W2014026), Liaoning Social Planning (Grant No. L15BJY035), Shenyang Municipal Science and Technology Bureau (Grant No. F16-233-5-08) and Liaoning Provincial Financial Research Fund (Grant No. 16C003).


Hou, Q. and Sun, J. (2020), "Investment strategy analysis of emission-reduction technology under cost subsidy policy in the carbon trading market", Kybernetes, Vol. 49 No. 2, pp. 252-284.



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