Emissions reduction and pricing of supply chain under cap-and-trade and subsidy mechanisms.

Abstract

This paper explored how the government provides low-carbon subsidies for the manufacturers, retailers, and consumers in a secondary supply chain under cap-and-trade scheme. We calculated the best prices, emissions reductions, and the demands for common and low-carbon products when subsidizing each of the abovementioned market players. In particular, a comparative analysis of their equilibrium outcomes was made thereafter. The MATLAB simulation found that the optimal emissions reductions under the three subsidy modes were even and positively correlated to low-carbon subsidies, which, however, negatively correlated to the prices of both product types. Higher subsidies drove up demand for low-carbon products and dragged down that for common goods. But the prices of these products maintained the highest levels when consumers were subsidized; demand for common products was greater when subsidies went to retailers than to manufacturers or consumers, consequently generating the largest emissions and highest profits. When the subsidies were greater than [Formula: see text], all three subsidy modes saw a drop in total carbon emissions. That being so, the government should offer proper subsidies before seeing energy-saving progress.