Do carbon taxes work? Analysis of government policies and enterprise strategies in equilibrium

To achieve the goal of carbon emission reduction, a number of countries have implemented carbon tax policies, and carbon pricing has become an important tool. This paper discusses the interactions between a government and an enterprise for implementing carbon taxes over time or by level of tax, considering greenhouse gas emission. We examine the impacts of various carbon tax policies on enterprises' investments in new technology, their reductions in production quantity, and governments' tax remittances. A case study of the strategic responses of three firms in Taiwan's electronics, cement, and steel industries to two carbon emission policies promulgated by government shows that appropriate levels of tax can induce an enterprise to alter its production processes to achieve emission reduction as part of a long-term business strategy. (C) 2016 Elsevier Ltd. All rights reserved.