Assessing the impact of carbon quota allocation in enhancing supply chain members emission reduction and advertising efforts

Abstract

Carbon quota allocation, a precise implementation approach within the cap-and-trade policy, exerts an enduring impact on the production and economic activities of supply chain members. Recognizing the dynamic fluctuations in product goodwill, this study formulates differential game models involving both the manufacturer and retailer within the supply chain. Subsequently, differences in carbon emission reduction efforts, advertising expenditures, product goodwill, and profitability among supply chain members within each contractual framework are comprehensively compared and analyzed. Numerical illustrations are then utilized to validate the theoretical findings and strengthen the subsequent key insights. First, the implementation of carbon quotas allocation, especially those grounded in the benchmarking-based contract, enhances carbon reduction and advertising efforts by supply chain members. Second, both grandfathering-based and benchmarking-based regulations improve the product goodwill, with the latter yielding more substantial improvements. Third, the escalation in unit emission permit price positively impacts the dedication and profitability of supply chain members, although variations in profit enhancements between the manufacturer and retailer hinge on the specific carbon quota allocation methods employed. Lastly, the grandfathering-based total carbon quotas exclusively benefit the manufacturer’s profitability, whereas the per-unit carbon quotas under benchmarking-based contract fosters enhanced individual efforts and profitability for all supply chain members.