Carbon Tax or Low-Carbon Subsidy? Carbon Reduction Policy Options under CCUS Investment

Abstract

Great expectations are placed in carbon capture, utilization, and storage (CCUS) technology to achieve the goal of carbon neutrality. Governments adopt carbon tax policies to discourage manufacturing that is not eco-friendly, and subsidies to encourage low-carbon production methods. This research investigates which carbon reduction incentive policy is more viable for the supply chain under CCUS application. The most significant finding is that carbon tax and low-carbon subsidy policies are applicable to high-pollution and low-pollution supply chains with the goal of maximizing social welfare. Both policies play a significant role in reducing carbon emissions. However, it is very important for the government to set reasonable policy parameters. Specifically, carbon tax and low-carbon subsidy values should be set in the intermediate level rather than being too large or too small to achieve higher social welfare. We also find that the higher the value of carbon dioxide (CO2) in CCUS projects, the higher the economic performance and social welfare, but the lower the environmental efficiency. Governments should properly regulate the value of CO2 after weighing economic performance, environmental efficiency and social welfare. The findings yield useful insights into the industry-wise design of carbon emission reduction policies for CCUS and similar projects.