The role of energy performance contracting in green financial incentives and achieving SDGs: environmental benefit or economic benefit

Abstract

In the pursuit of low-carbon sustainable development, many nations have implemented stringent carbon taxes to reduce greenhouse gas emissions. These rigorous carbon tax regulations compel manufacturers to invest in green technologies, which can place a significant financial burden on them. To mitigate this strain, manufacturers may turn to bank loans or supplier-based financial incentives, such as supplier financing and energy performance contracting, to fund their green investments. Therefore, this paper examines the interplay between suppliers’ green financial incentives and manufacturers’ green finance options under carbon tax policies, aiming to identify Pareto optimal outcomes. Through game theory, some conclusions are obtained. First, manufacturers generally prefer supplier-based financial incentives over bank loans, with energy performance contracting favored at low tax rates and supplier financing at high tax rates. Second, from an economic standpoint, Pareto optimality between suppliers and manufacturers is achieved only through supplier financing under high carbon tax rates and low supplier financing interest rates. Third, energy performance contracting emerges as the optimal green financial incentive for promoting low-carbon sustainable development, thereby contributing to the achievement of sustainable development goals.