Carrots, sticks, or hybrids? Evaluating policy instruments for low-carbon economic transition in CCUS supply chains

Abstract

The pursuit of global carbon neutrality has heightened the importance of Carbon Capture, Utilization, and Storage (CCUS) technologies in low-carbon operations and supply chain management. To improve the operational performance of the CCUS supply chain and support climate change mitigation and net-zero emissions goals, policymakers are evaluating three key strategies: carbon tax, carbon capture subsidy, and a hybrid approach combining both mechanisms. These policies aim to mitigate carbon emissions while improving low-carbon economic performance. Our comparative analysis yields critical insights: Under conditions of low product pollution, the hybrid policy demonstrates superior performance across supply chain economics, environmental outcomes, and low-carbon economic indicators. Conversely, in high-pollution scenarios, the carbon capture subsidy and carbon tax policies exhibit distinct strengths—the former excels in economic performance, while the latter proves more environmentally effective. Notably, the carbon capture subsidy policy achieves the highest low-carbon economic performance in such cases. The robustness of these findings is confirmed through sensitivity analysis of the low-carbon economic performance function. Furthermore, we propose a two-part tariff contract to enhance the efficiency of supply chain with CCUS, advancing low-carbon operations. This study provides actionable insights for selecting optimal carbon reduction policies to advance CCUS initiatives in alignment with net-zero emissions objectives.