Green Supply Chain Coordination Considering Carbon Emissions and Product Green Level Dependent Demand

Abstract

As traditional supply chains face increasingly severe environmental issues, and as countries promote green development and sustainable development policy concepts, cultivating green supply chain operation models is gradually coming to be highly valued by governments and enterprises. Generally speaking, the production of green products incurs higher additional costs, and thus, their total production costs also increase. In this work, we studied the coordination mechanism, by considering carbon emissions and product green level dependent demand, in which the product green level is related to the random demand. Under the green supply chain buyback contract with the green product R&D cost sharing between the manufacturer and the retailer, both the product green level and the order quantity need to be decided, to maximize the channel profit. In order to coordinate the green supply chain, the manufacturer needs to share both the risk of good salvage and the green product R&D cost with the retailer. We found that both the wholesale price and the buyback price increase in the manufacturer’s proposition of the green product R&D cost, but decrease in the emission reduction efficiency coefficient or carbon trading price. In addition, the product green level, the optimal order quantity and the channel profit increase in the emission reduction efficiency coefficient, but decrease in the R&D cost coefficient of the product green level. Interestingly, we found that if the carbon trading price is low, the manufacturer will set a low product green level, and the product carbon emission trading is a cost for the supply chain. The increment of the carbon trading price leads to a higher cost, such that the channel profit is decreased. However, if the carbon trading price is high, the manufacturer will set a high product green level, and the product carbon emission trading is a revenue for the supply chain. The increment of the carbon trading price leads to a higher revenue, such that the channel profit is increased.