Enterprises' compliance with government carbon reduction labelling policy using a system dynamics approach

Abstract A carbon reduction labelling scheme is an effective policy tool for motivating enterprises or organizations to reduce their life-cycle-based carbon emissions to benefit the environment. This paper uses system dynamics to model enterprises' compliance with a combined government policy instrument for a carbon reduction labelling scheme, that is, government subsidies and economic sanctions. A case study of paper enterprises in China is provided to demonstrate the application of the proposed model in which two optional technological plans to reduce the enterprises' carbon emissions are examined. The technological plans are categorized as a low-cost and high-cost plan. The simulation results show that both the technological plans are vulnerable to the combined policy making, and the high-cost plan shows superior environmental performance for carbon emissions reduction. However, the enterprises are more inclined to choose the low-cost plan because of superior economic performance. The study offers insights to help enterprises select optimal actions on carbon emissions reduction and to inform government of possible sustainable policy design to promote low-carbon development. The model limitations are discussed as a basis for further improvements in low-carbon development.