The impact of carbon mitigation policies on business development: from a dynamic simulation aspect in China

• The influence of carbon mitigation policies on business development from the perspective of internal company management operations is proposed. • A scenario simulation is conducted to ascertain the most effective policies, by utilizing a system dynamics model. • Mandatory measures that internalize external costs can necessitate firms to implement green transformations, although they may also elevate operating expenses. Consequently, excessively stringent laws may impede standard business operations. • The ideal policy combination must facilitate green transformation in businesses while preserving government revenue to guarantee investment in public services and infrastructure. • Public awareness and engagement in environmental projects can improve the efficacy of carbon emission mitigation policies during execution. Climate change presents substantial social and economic challenges, necessitating that nations worldwide create ways to mitigate carbon emissions. As a principal emitter, China must adopt stringent carbon-reduction measures to align environmental sustainability with economic development. Evaluating the efficacy of these rules from the standpoint of micro-level enterprise operations aids in ascertaining the practical utility of the policies. This research utilizes an evolutionary game model and system dynamics to evaluate the effects of China’s carbon emission reduction plans on operational variables, including company revenue and innovation activities. The study assesses the impact of these measures on the green transformation of firms. Mandatory measures elevate the operational expenses of high-carbon firms, potentially hindering their shift to more sustainable practices. While incentive-based policies can alleviate the burden of their green transformation. Consequently, a combination of mandatory measures and incentive policies is essential for facilitating the transition of energy-intensive businesses to low-carbon operations. Furthermore, these policies can foster a market environment that facilitates the green transformation of firms by modifying the preferences of market participants, particularly aiding energy-intensive industries in diminishing their carbon emission intensity. This study highlights that policy simulation can assist policymakers in harmonizing incentive and mandatory policies to create a policy mix that promotes R&D investment while decoupling carbon reduction from company profitability.