Collaborative emission targets joining and quantity flow decisions in a Stackelberg setting

Abstract

Emission targets joining decisions along a channel are recently introduced for firms to join their targets to be more effective in keeping their emissions below a certain level. Non-collaborative emission target joining decisions under a Stackelberg setting, with one leader and one follower, have been analyzed in the literature. Here, we investigate collaborative emission targets joining decisions. In particular, we discuss that, when joining decisions are collaboratively made, both the leader and follower will agree upon joining their emission targets, which is not necessarily the case under non-collaborative scenario. Then, two allocation mechanisms are proposed to share the cost savings of joining emission targets, namely, sharing-based and fixed-payment allocations. We characterize the cases when these allocation mechanisms are rational, fair, and coordinate the channel, and compare them to Shapley value allocations. Furthermore, we analytically compare the channel costs and emissions under three different joining approaches: no, non-collaborative, and collaborative joining. It is shown that collaborative joining can reduce not only the channel costs but also the channel emissions as compared to no and non-collaborative joining. Numerical examples are presented under an application setting to demonstrate how different joining decision approaches compare in terms of channel costs and emissions.