Carbon Footprinting and Pricing Under Climate Concerns
(A2020-62615)

AUTHORS

Marco Bertini, ESADE -- Ramon Llull University; Stefan Buehler, School of Economics and Political Science, University of St. Gallen; Daniel Halbheer, HEC Paris; Donald Lehmann, Columbia Business School

KEYWORDS

Product Design; Carbon Footprint; Net Zero Carbon Emissions

ABSTRACT

This paper studies how marketers should choose the carbon footprint and price of a product when consumers have climate concerns. We first derive the profit-maximizing carbon footprint and price, and examine the impact of stronger climate concerns on the optimal marketing activities. Next, we provide conditions under which offsetting the emissions in a voluntary market to achieve a net zero carbon footprint is optimal. Finally, we consider the impact of product-level decisions on the carbon emissions of the firm as a whole. Interestingly, we find that a firm can become a victim of its own success, as a greener product may boost sales to the point that overall emissions also increase.