Confronted with the constraints of global carbon reduction mandates and the widespread implementation of cap-and-trade (CAT) policy, competing manufacturers face critical choices in carbon quota trading, such as engaging in external markets or internal agreements. We develop a duopolistic game model comprising a low-carbon manufacturer (MG) and a traditional manufacturer (MT) under a CAT framework. In a perfect carbon quota trading market, manufacturers simultaneously cooperate and compete, facing a strategic choice between external trading through the open carbon market and internal trading agreements. We investigate how the low-carbon development level, carbon quota surplus, and internal carbon price affect their choices of carbon quota trading modes. Analytical results indicate that in the scenario where MG’s quota surplus is insufficient to fully meet MT’s demand, both manufacturers can achieve Pareto improvement in their respective profits within a certain range of internal carbon prices. Otherwise, the internal trading agreements may only guarantee an increase in their aggregate profits. A numerical analysis based on the actual situation of China’s steel industry verifies the theoretical conclusions.
Zhang et al. (Tue,) studied this question.