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Decomposition method for oligopolistic competitive models with common environmental regulation

  • S.I.: BOM in Social Networks
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Abstract

Global climate change has encouraged international and regional adoption of environmental policies aiming at reducing the generation of greenhouse gas emissions. Europe has taken the leadership in environmental regulations by introducing the European-Union Emissions Trading System (EU-ETS) in 2005 and other policies to mitigate carbon emissions and increase the efficiency of production processes. These environmental policies have significantly affected the production choices of the European energy and industrial sectors. In this paper, we consider a market where a set of players (firms) produce different commodities under a common environmental regulation that limits their emissions. Due to these environmental restrictions, the problem is treated as a generalized non-cooperative game where players have joint (environmental) constraints caused by the common and compulsory emission regulation. The problem is to find a natural mechanism for attaining the corresponding generalized equilibrium state. We suggest a share allocation method, which yields a suitable decomposition type procedure and replaces the initial problem with a sequence of non-cooperative games on Cartesian product sets. We also show that its implementation can be simplified essentially after the application of a regularized penalty method. In the case study, we take inspiration from the EU-ETS and we introduce an environmental regulation that restricts the carbon emissions of firms representing the energy, cement, and steel sectors respectively in Germany, France, Italy, and Spain. Our results confirm the important role played by energy sector in reducing carbon emissions.

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Notes

  1. See http://ec.europa.eu/clima/policies/ets/revision/index_en.htm.

  2. See http://ec.europa.eu/clima/policies/ets/cap/leakage/index_en.htm.

  3. See http://ec.europa.eu/eurostat/web/energy/data/main-tables.

  4. See http://www.cembureau.be/activity-reports.

  5. See https://www.vdz-online.de/en/.

  6. See http://www.infociments.fr/.

  7. See http://www.aitecweb.com/.

  8. See https://www.oficemen.com/default.asp?id_cat=10.

  9. See http://www.wbcsdcement.org/GNR-2013/index.html.

  10. See http://ec.europa.eu/eurostat/statistics-explained/index.php/Energy_price_statistics.

  11. The NAPs of the second EU-ETS phase are available at http://ec.europa.eu/clima/policies/ets/registry/documentation_en.htm.

  12. See https://www.eex.com/en/.

  13. Notice that EAF crude steel production has the lowest carbon emission factors among the considered pollutant production processes (see Table 2). This justifies the fact that EAF crude steel has the lowest production drops.

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Acknowledgements

In this work, the third author was supported by the RFBR Grant, Project No. 16-01-00109a. Elisabetta Allevi and Giorgia Oggioni are grateful to the UniBS H&W Project “Brescia 20-20-20” for the financial support. We thank the editor and the three anonymous reviewers for their valuable comments, which helped us to improve the manuscript.

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Authors and Affiliations

  1. Department of Economics and Management, University of Brescia, Brescia, Italy

    E. Allevi

  2. Department of Management, Economics and Quantitative Methods, University of Bergamo, Bergamo, Italy

    A. Gnudi

  3. Department of System Analysis and Information Technologies, Kazan Federal University, Kazan, Russia

    I. V. Konnov

  4. Department of Economics and Management, University of Brescia, Brescia, Italy

    G. Oggioni

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  1. E. Allevi
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Correspondence to E. Allevi.

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Allevi, E., Gnudi, A., Konnov, I.V. et al. Decomposition method for oligopolistic competitive models with common environmental regulation. Ann Oper Res 268, 441–467 (2018). https://doi.org/10.1007/s10479-017-2494-3

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