Study on the Impact of Environmental Subsidies and Green Labels on Greenwashing in Sustainable Production

Abstract

While the imperative for green manufacturing is widely acknowledged, there is ongoing global concern regarding manufacturers’ greenwashing practices. This situation presents a conundrum: how to mitigate greenwashing effectively, ensuring both optimal profits and increased product sustainability, while promoting social welfare. Our study investigates manufacturers’ greenwashing activities and evaluates the implications of various environmental policies—including non-intervention, green subsidies, green labels, and combined green subsidies and green labels—on production decisions and social welfare through mathematical modeling analysis. Unlike prior work, our research provides an in-depth examination of decision-making interactions between governments and manufacturers, utilizing a politico-business gaming model. We elucidate how governments can obtain reliable green information from expert product-testing institutions within the framework of green subsidy policies. Furthermore, our study examines the revelatory role of information on green labels under label policies. Through analytical resolution, we scrutinize the deterrent effects of these environmental policies on greenwashing. The findings of our study indicate that, compared to non-intervention scenarios, green subsidies, green labels, and combined policies are all effective at restraining greenwashing, with green label policies and combined policies showing equal effectiveness in this regard. Notably, combined policies are more effective than subsidies alone in both reducing greenwashing and enhancing social welfare. Interestingly, manufacturers may not inherently prefer green labels or combined policies when profit is their primary concern, suggesting that governments may need to carefully adjust green label standards to balance the goals of preventing greenwashing, maximizing profits, and promoting social welfare.