Carbon reduction in a supply chain via dynamic carbon emission quotas

Abstract

Abstract Due to increasing environmental pollution, governments have issued a series of policies to control carbon emissions. A carbon quota policy is one of them. This study aimed to verify the effectiveness of the policy by examining its impact on supply chain members. This paper investigates emissions reduction in a supply chain under different carbon emission quotas in two stages. This paper constructs a supply chain model in three modes: (i) no carbon emission quota policy, (ii) the government implements the first stage of a carbon quota policy, and (iii) the government offers lower carbon quotas in the second stage. The analysis reveals that when the initial carbon quota allocated by the government meets certain conditions, the emission reduction rate in the first stage of the carbon quota policy is greater than that without the carbon quota policy; and an interesting finding is that the reduction rate further increases when the government reduces carbon quotas in the second stage. In addition to the reduction rate, the manufacturer's and the retailer's profits increase with consumers' preference for low-carbon products. With an increase of the decline parameter of free allocated carbon emission rights, the profits of both the manufacturer and the retailer decrease, but the profit of the manufacturer in the second stage is always lower than that in the first stage, whereas the retailer's profit is higher in the second stage than in the first stage.