The Green-Innovation-Inducing Effect of a Unit Progressive Carbon Tax

Abstract

The major global economies are facing increasing pressure to reduce their carbon emissions. Introducing environmental policy instruments to stimulate green innovation is key to mitigating global warming. We propose a carbon tax design with a typical green innovation orientation that links carbon taxes with the low-carbon technology (LCT) of enterprises and imposes a progressive tax on heterogeneous enterprises with LCT stock to encourage green innovation. This study used a dynamic evolution game model based on the Stackelberg model of heterogeneous enterprises with LCT stock to analyze the green-innovation-inducing effect of unit progressive carbon taxes. A unit progressive carbon tax could encourage enterprises to participate in green innovation, regardless of their initial green innovation willingness. The progressive tax rate was more effective than a fixed rate for stimulating green innovation by all enterprises. There was a marginal diminishing effect of increases in the tax rate. An increase in the innovation cost coefficient of enterprises reduced the green-innovation-inducing effect of the unit progressive carbon tax. Increasing the tax rate was effective only under normal circumstances. A decline in the carbon reduction in enterprises also reduced the green-innovation-inducing effect of the unit progressive carbon tax. Furthermore, increasing the tax rate when the carbon reduction amount was extremely low caused enterprises to abandon green innovation.

The Synergy Green Innovation Effect of Green Innovation Subsidies and Carbon Taxes

“…Furthermore, the synergy green innovation effect was also reflected in that introducing a unit progressive carbon tax made the high LCT Enterprise 1 more sensitive to the new consisted policy system. The enterprises with high LCT are more sensitive to the environmental policy system containing carbon taxes, because introducing a unit progressive carbon tax stimulates enterprises to pursue a larger carbon emission cost-saving advantage in market competition [6]. In fact, this finding has always been ignored by policy makers.…”

“…After the essential position of carbon taxes was realized, researchers transferred their focus from the carbon reduction effect to the green innovation-inducing effect, trying to amplify the green innovation effect of carbon taxes [38]. New carbon tax designs with stronger green innovation-inducing effects, such as the unit progressive carbon tax, provide more appropriate policy choices for other countries to impose carbon taxes when expecting a significant green innovation-inducing effect [6,39]. Imposing carbon taxes to stimulate green innovation is a considerable policy advantage, because it can both increase the environmental policy strength and alleviate the subsidy expenditure pressure on governments [40].…”

“…There have been suggestions that governments introduce a carbon tax on the basis of green innovation subsidies to create a policy system having a synergy green innovation effect [5]. Yu et al [6] proposed a unit progressive carbon tax with a significant green innovation-inducing effect, which can stimulate all enterprises' green innovation precisely by building a direct link between their Low Carbon Technology (LCT) level and carbon emission costs. The unit progressive carbon tax provides a better carbon tax design to study the synergy green innovation effect of green innovation subsidies and carbon taxes, because it can improve the entire green innovation level of LCT heterogeneous enterprises.…”

Which Is the Best Supply Chain Policy: Carbon Tax, or a Low-Carbon Subsidy?

“…In terms of enterprise incentives, regardless of the initial green innovation desire, a unit progressive carbon price might motivate businesses to participate in green innovation. For encouraging green innovation by all businesses, a progressive tax rate proved more beneficial than a set rate, while increases in the tax rate had a marginal declining impact [5]. Carbon tax policy is bad for business and bad for consumers, whereas it is positive for both enterprises and consumers if products are more satisfactory to customers.…”