Governance intervention policies in the production competition of biofuels and fossil fuels: a pathway to sustainable development

Environmental pollution and social welfare have become significant issues for governments and policy-makers in both developed and developing countries. That’s why there is an essential need to develop a comprehensive model for investigating the impact of government interventions on the production quantities of refineries considering competition between bio and oil fuels. Although some papers have focused on the tariff policy as a subsidy or a tax scheme, there is still a lack of models taking the government’s role as an independent player in the competitive market of refineries into account. Also, previous studies have not modeled the government and refineries competition as a competitive game in which they are the leader and follower, respectively. Moreover, no study has discussed the issue based on the sustainability goals of the government in the contexts of economic, environmental, and social aspects considering the selection of the tariff or investment strategy. To fill these gaps, this paper develops a bi-level multi-objective mathematical model incorporating two policies of tariff and investment on production capacity as environmental governance policy in refineries competition. The first level presents government problems under sustainability considerations. In the second level, the competition of bio and oil refineries is formulated using the Cournot competition game model. The transformation method is proposed by applying KKT conditions to obtain the best responses of refineries in the corresponding game. In addition, the revised multi-choice goal programming approach is used to solve proposed multi-objective model. A case study is presented to show the applicability of the model and the sensitivity analysis of the critical parameters is conducted. The findings show that government intervention policies on fuel production and consumption can be positively and directly related to reducing pollution and increasing social welfare.