In Research for academia, Work in progress

This paper studies how firms should design a product by choosing the carbon footprint and price when facing climate concerns. The authors first show how the cost and demand effects of reducing the carbon footprint determine the profit-maximizing carbon footprint and price, and examine how firms should adjust the product design in the face of stronger climate concerns. Paradoxically, they find that stronger climate concerns may increase the firm’s climate impact. Second, the authors establish that offsetting carbon emissions to reach a net zero climate impact may create a win-win outcome for the firm and the climate, even if the product’s carbon footprint before offsetting is larger. Third, the authors show how government regulation in the form of a cap-and-trade scheme or a carbon tax affects product design, firm profitability, and the adoption of green technologies. Finally, the authors study profit-maximizing product design and carbon offsetting under competition. These results are meant to help marketers understand the consequences of voicing climate concerns with an organization.