Research on enterprise production decision‐making considering consumer heterogeneity under carbon labeling system

Abstract The article focuses on consumers with heterogeneous preferences for product carbon footprints under two carbon labeling systems: carbon reduction labels and carbon footprint labels. Using mathematical models, the study explores the optimal decision‐making behavior of enterprises under the carbon labeling system based on consumer utility theory at the enterprise level. It also investigates consumer surplus, environmental improvement, and social welfare under different production modes of the carbon reduction label and carbon footprint label systems at the societal level. The research findings are as follows: (1) At the level of economic benefits for enterprises, choosing to produce products with carbon reduction labels is more favorable when the investment costs for emission reduction are high, while choosing to produce products with carbon footprint labels is more favorable when the investment costs for emission reduction are low. The optimal prices of products under the two carbon labeling systems show opposite trends compared to the investment costs for emission reduction. (2) At the level of environmental benefits for enterprises, under the carbon reduction labeling system, whether through full production or a mixed production mode, enterprises are only willing to reduce the carbon footprint of products to the standard value. However, under the carbon footprint labeling system, especially in the mixed production mode, enterprises show a stronger willingness to overachieve in emission reduction target. (3) At the level of social benefits, compared to the situation under the carbon reduction labeling system, when the investment costs for emission reduction are low, the carbon footprint labeling system is more favorable in terms of consumer surplus and social welfare. However, this advantage gradually diminishes as the investment costs for emission reduction increase. (4) Excessive investment costs for emission reduction are detrimental to the implementation of both carbon reduction and carbon footprint labeling systems. The research conclusions suggest that companies should develop appropriate production strategies based on actual circumstances. Additionally, it is necessary for both the government and companies to reduce investment costs in emissions reductions by improving the system and optimizing emission reduction methods in order to better implement carbon labeling policies.