Carbon reduction technology investment of supply chain under quota trading and government subsidy

Abstract

This paper aims to improve government and enterprise decision-making on emission reduction. Focusing on the carbon emission reduction (CER) technology investment of manufacturers and the cost sharing of retailers, the government policies on carbon quota, carbon trading and emission reduction subsidy were taken into consideration. The game theory was adopted to build an expected profit model between the retailer and the manufacturer, and the impacts of the government policies on four decision-making scenarios for emission reduction, namely, decentralized decision-making, cooperative game, centralized decision-making and social planning. Through modelling, comparative analysis and parametric sensitivity analysis, it is concluded that the CER level, the optimal order quantity and the optimal social benefit are highest under social planning, followed by centralized decision-making, decentralized decision-making and cooperative game. The research findings shed new light on energy conservation and emission reduction in two-level supply chain.