Joint management strategy of carbon allowance in the supply chain under free carbon allowance

Abstract

Substantial reductions in carbon emissions are necessary to control global warming. However, the low capacity of individual companies to reduce emissions can constrain the capacity of the entire supply chain. This paper investigates how the supply chain manages carbon allowances to rationalize the allocation of carbon allowances and improve supply chain profits. Firstly, the supply chain alone manages the management of carbon quotas and then proposes new management of carbon quotas, including joint management of carbon allowances by manufacturer-led supply chains and co-management of carbon allowances by supplier-led supply chains. The Stackelberg game model aims to find the optimal price, wholesale product price, and carbon reduction level. Then, the paper compares profits under different management models, and the study results show that the supply chain joint management carbon allowance strategy is related to the number of carbon allowances and the price. The results of the study suggest that joint management of carbon allowances by supply chains can promote both environmental benefits and supply chain profitability, but from the perspective of individual benefits, there are not always opportunities for manufacturers and suppliers to join forces; it is also related to the number of carbon allowances and the price of carbon trading, and in some cases, supply chain joining forces will result in the lowest profitability of the whole supply chain. Finally, many numerical experimental validations further show that the joint management of carbon quotas in the supply chain can improve corporate profits and reduce carbon emissions, which provides essential insights for enterprises to manage carbon quotas.