A Study on the Optimal Carbon Tax and Effects under the Background of Carbon Tariffs: A Theoretical Analysis Based on Oligopoly Competition Model

Abstract

Against the backdrop of the EU’s implementation of a carbon border regulation mechanism in 2026, it is crucial for developing countries to address this issue. This paper is based on a two-stage oligopoly competition model, considering that some of the products produced by developing countries are used for export and some are used for domestic sales. Factors such as carbon emissions reduction and production cost differences between developed and developing countries are included to explore the optimal setting of carbon taxes in developing countries and the impact of carbon tariffs on welfare, trade, and environmental effects in developing countries. The research results indicate that: 1) the optimal carbon tax setting in developing countries is related to the production costs and carbon tariff coefficients of developed countries. There is a negative correlation with production costs in developed countries and a positive correlation with carbon tariff coefficients. 2) The social welfare of developing countries increases with the increase of production costs in developed countries; with the increase in carbon tariffs imposed by developed countries, the social welfare of developing countries first decreases and then increases. 3) The profits of enterprises in developing countries first decrease and then increase with the increase of production costs in developed countries; with the increase in carbon tariffs imposed by developed countries. 4) The environmental pollution of developing countries will increase with the increase of production costs in developed countries, and decrease with the increase of carbon tariffs. Based on this, this article proposes relevant policy recommendations for developing countries.