ASYMMETRIC EMISSION REGULATIONS AND INTERVENTIONS OF THE LOCAL GOVERNMENT

Date

2024-4

Author

Gürlesin, Taha Yasin

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The intensifying environmental and socio-economic problems accompanying the climate crisis drive countries to implement more sustainable development goals, enacting stringent laws and regulations to control industrial greenhouse gas emissions. The EU's carbon border adjustment mechanism (CBAM) potentially affects countries without ambitious climate policies, especially those trading with Europe. In this thesis, we analyze how a manufacturer exporting to two regions—one developed and one developing—and a local government respond to the CBAM imposed by the developed region. We study two models: a base model in which the manufacturer sets prices for both regions, and this model serves as a benchmark for the second model, the CBAM. In the CBAM model, the manufacturer faces a carbon border tax from developed region and can reduce its unit emission level by investing in green technology. In the first stage, the government, which aims to improve economic and environmental performance, decides on a subsidy rate for the government's technology investment cost. In the second stage, the manufacturer invest in green technology by incurring lump-sum cost for reduce emission level, and aims to maximize its profit. After technology investment, the manufacturer sets prices for both regions. We compare the manufacturer's price decisions under the base and CBAM models. We characterize the manufacturer's emission reduction decision under the local government's subsidy.

Subject Keywords

Carbon border adjustment mechanism, Asymmetric emission regulations, Government intervention, Green technology investment

URI

https://hdl.handle.net/11511/109491

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Graduate School of Natural and Applied Sciences, Thesis