A DEA-based decision framework to determine the subsidy rate of emission reduction for local government

Local governments have provided the subsidy policy to help enterprises for their efforts in reducing the emission of carbon dioxide. The current paper discusses the policy decision-making process of a local government on how to determine the best subsidy rate under the consideration of achieving the best comprehensive effect. The policy-making framework introduced to determine the optimal subsidy rate takes three steps. First, a market of distinct products is set up to describe the competitive situation between traditional high-emission product and low-emission green product. Then, the subsidy policy provided by the local government stimulates and supports the companies producing green products and reducing the emissions. Once the subsidy rate is determined, three indicators including government revenue, employment level and pollution emissions used to analyze the influences of the policy upon the government. At last, the selection problem regarded as a multicriteria decision-making (MCDM) problem is solved by Data Envelopment Analysis (DEA) technique. A numerical example is presented to illustrate how our method works.