Enterprise behaviour under Cap-and-Trade conditions: an experimental study with system dynamic models

Abstract

Operating under Cap-and-Trade programme conditions has brought new challenges to industrial organizations pursuing green sustainable development by imposing more constraints on resource/energy acquisition and disposition in order to reduce green-house-gas emissions. New factors due to the conditions interact with each other and system production/service functions, causing complicated dynamic relationships that significantly affect the overall performance of participating enterprises. Managers now have to balance production economy and green improvement. This research shows a proactive approach based on system dynamics modelling to represent such complex systems and analyse the relationship to explore the underlining logic that drives system behaviour under related conditions. The analysis provides useful insights for decision or policymakers to pursue environmentally friendly and economically sound production. Conceptual models were developed and verified for functions, and simulation experiments were designed to implement the models and compare different strategies to analyse their impact on the system’s overall performance, such as long-term over-emission, continuous green investment on emissions reduction, and cost of purchasing emissions allowance or paying penalty (via over-emission tax).

Keywords:

• system dynamics
• simulation modelling
• Cap-and-Trade programme

Acknowledgements

This research was partially supported by the Natural Science Foundation of China (Grant No. 71101094, 71172057, 71272089, and 71472126). We are also grateful to the referees and the editors.