How to reduce carbon emissions of small and medium enterprises (SMEs) by knowledge sharing in China

Abstract Small and medium-sized enterprises are important components of the economy worldwide, and they are considered to be responsible for a large part of carbon emissions. However, because of the limitations in resource, knowledge and technical capabilities, most SMEs are confronting environmental issues such as the negative spillovers. The policy costs of an administrative order that is effective to promote emission reductions of large enterprises in China’s current economy could be high, and therefore, it is essential and crucial to establish a market-driven mechanism to help and encourage SMEs to make environmental improvement regarding the cap-and-trade system. In this context, new patterns of emission reduction would have profound impacts on knowledge management (KM) of SMEs, especially on knowledge sharing and knowledge transfer. In this paper, we adopt a micro-model to study the behaviors and carbon emissions of SMEs under different scenarios. We find that both trading and sharing of knowledge on carbon emission reduction are conducive to reducing emissions of SMEs in the context of cap-and-trade. Besides, the more the compensation is granted, the more manufacturing firms are willing to share knowledge with partners who have complementary knowledge. Subsidies or rewards on knowledge sharing can be helpful to reduce carbon emission, which may have important implications for public policy to solve the problem of carbon emission reduction of SMEs.