To Be or Not to Be? Strategic Analysis of Carbon Tax Guiding Manufacturers to Choose Low-Carbon Technology

Round 1

Reviewer 1 Report

Summary:

This paper evaluates a theoretical manufacturing firm response to carbon taxes in a competitive market. They use game theory approach with three-level supply chain including the regulator, manufacturers, and retailers with a focus on the manufacturing firm’s choice between common and low-carbon technology in response to a carbon tax. They find that a high carbon tax may not always lead to a choice of low-carbon technology, and that market size and the efficiency of the caron-reducing technology matters.

The paper asks an interesting question and does a mathematically sound job analyzing it. I recommend more context be provided to illustrate the applicability of this research to manufacturing industries across the world that produce carbon emissions with mostly substitutable products.

Main Feedback:

This is about the manufacturing industry only, and somewhere in the introduction or the literature review you should add a little contextual information about the manufacturing industry’s contributions to global carbon emissions, as it is only one sector. Some specific examples would be helpful, such as which manufacturing practices produce carbon and can be subject to taxes and choosing new technologies? What new technologies could they choose among?

Since this focuses on carbon taxes specifically, the paper should quickly identify how many countries are using carbon taxes, and if most are considered high or low in this model.

It seems important that the product produced by the manufactures is completely substitutable – what manufacturing industries that emit carbon does this apply to? Do all regions have multiple cement manufacturers, or oil refining, or bulk chemical processing? What type of industrial markets are small versus large? You define this mathematically in line 313, but can you provide examples? I see later in the paper you address alternatives such as imperfect substitutes – but I think more examples to illustrate what you mean by this would help the reader.

There is no discussion about which country this research applies to – should we believe that all manufacturing companies in all parts of the world would respond following the same logic, or does government or market structure matter? Most carbon taxes do not exist alone and many governments use a portfolio of policies such as clean energy standards and cap-and-trade policies, or other environmental policies are in place that impact carbon emission indirectly. Does your model still work given different government and policy scenarios? Explain these very really different contexts more.

Specific Feedback:

Introduction: Some specific examples of common and low-carbon technology would be helpful here to help illustrate the game. For example, it is not clear yet if this is just industrial generators or who the industry is.

Line 135: Makes it sound like you are treating the firm like a monopoly but later in this paragraph you state you’re analyzing response in a competitive market. Recommend clarifying the line in 135 accordingly. It seems a contribution is this evaluates the competitive market so make that clear.

Line 177-178: Another opportunity to provide a specific example, or explain how “common” technology emission compare to “low-carbon” emissions technology. Is it a 90%, 50%, or 30% reduction that we’re considering? It seems you consider a range of reductions, but it’s not clear.

Author Response

Please see the attachment.

Author Response File: Author Response.docx

Reviewer 2 Report

Although the study was well designed, it needs significant adjustments.

- The title does not fully meet the content.

- Clarity and contributions in the literature should be mentioned in the abstract.

- The harmful effects of climate change should be obtained from reports such as BP, OECD, IEA and shown in the article.

- The article is lacking in graphics.

- The rest of the article should be explained at the end of the introduction.

- What is the basis for creating Figure 1?

- Figures 2 and 3 contain important outputs. These should be explained in detail.

- Policy recommendations should be based on the results of the study. In addition, the limitations of the study should be stated.

Author Response

please see the attachment.

Author Response File: Author Response.docx