Table 1 The scenarios.

Scenario 1: BAU

No policy

(Baseline scenario)

In this scenario, it is assumed that the price of pollutant emissions is 0. The government will not set any subsidies or emission targets. Therefore, intermediate goods producers do not seek to reduce emissions in the production process.

\({P}_{t}^{Z}=0\)

Scenario 2: CEC

Carbon emissions cap policy

In this scenario, the governments announce a mandatory emission cap to control pollutant emissions, and sell emission permits to the enterprises with the emission price.

\(\begin{array}{l}{Z}_{t}={\kappa }_{t}\bar{Z}\\ {\mathrm{ln}}\,\frac{{\kappa }_{t}}{\kappa }={\rho }_{\kappa }\,{\mathrm{ln}}\,\frac{{\kappa }_{t-1}}{\kappa }+{\varepsilon }_{t,\kappa },{\varepsilon }_{t,\kappa } \sim N(0,{\sigma }_{\kappa }^{2})\end{array}\)

Scenario 3: FTS

Fossil fuel technology subsidy policy

In this scenario, the government subsidizes fossil fuel technology at an exogenous level \({s}_{t}^{FF}\).

\(\begin{array}{ll}T{E}_{t}^{FF}={A}_{t}^{T}T{I}_{t}{[(1+{s}_{t}^{FF}){K}_{t}^{FF}]}^{{\alpha }_{FF}}{({\eta }_{t}^{L}{L}_{t}^{FF})}^{1-{\alpha }_{FF}}\\ T{r}_{t}=\overline{T{r}_{t}}+{s}_{t}^{FF}{K}_{t}^{FF}\\ \mathrm{ln}\,\frac{{s}_{t}^{FF}}{{s}^{FF}}={\rho }_{{s}^{FF}}\,{\mathrm{ln}}\,\frac{{s}_{t-1}^{FF}}{{s}^{FF}}+{\varepsilon }_{t,{s}^{FF}},{\varepsilon }_{t,{s}^{FF}} \sim N(0,{\sigma }_{{s}^{FF}}^{2})\end{array}\)

Scenario 4: RTS

Renewable energy technology subsidy policy

In this scenario, the government subsidizes renewable energy technology at an exogenous level \({s}_{t}^{RE}\).

\(\begin{array}{l}T{E}_{t}^{RE}={A}_{t}^{T}T{I}_{t}{[(1+{s}_{t}^{RE}){K}_{t}^{RE}]}^{{\alpha }_{RE}}{({\eta }_{t}^{L}{L}_{t}^{RE})}^{1-{\alpha }_{RE}}\\ T{r}_{t}=\overline{T{r}_{t}}+{s}_{t}^{RE}{K}_{t}^{RE}\\ {\mathrm{ln}}\,\frac{{s}_{t}^{RE}}{{s}^{RE}}={\rho }_{{s}^{RE}}\,{\mathrm{ln}}\,\frac{{s}_{t-1}^{RE}}{{s}^{RE}}+{\varepsilon }_{t,{s}^{RE}},{\varepsilon }_{t,{s}^{RE}} \sim N(0,{\sigma }_{{s}^{RE}}^{2})\end{array}\)