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Mathematical Problems in Engineering
Volume 2016, Article ID 9168765, 12 pages
Research Article

Multistage Investment Actions with the Emission Cap

1School of Economics, Capital University of Economics and Business, Beijing 100070, China
2School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China
3School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China
4School of Banking and Finance, University of International Business and Economics, Beijing 100029, China

Received 15 December 2015; Accepted 1 February 2016

Academic Editor: Francesco Pesavento

Copyright © 2016 Mingrong Wang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


To achieve the emission reduction target in 2020, China plans to establish a nationwide carbon trading market during 2016–2019. It is therefore an important but difficult task for policymakers to set emission allowances and allocate them among entities. There are three alternative allocation rules, which vary from free of charge to full auctioning. For business managers, the question is whether one of these rules meets the emission cap at the minimum cost. Based on China’s emission-abatement target, this paper examines the optimal investment and analyzes its implementation in different allocation rules. A new model is developed to formulate enterprises’ emission reduction pathways and the cost-minimization problem with the emission cap. The results show that the magnitude of enterprises’ emission reduction is positively related to their innovation potential; neither auctioning nor being free of charge can make enterprise’s individual emission-abatement investment in accordance with the optimal level; enterprise’s individual emission-abatement investment is sensitive to efficiency, budget cap, and environmental benefit. This paper discusses simultaneously their policy implications for China.