Managing green house gas emission cost and pricing policies in a two-echelon supply chain

Abstract

Reduction of green house gas (GHG) emission is becoming a vital issue to protect our environment. In this point of view, industrial firms’ managers have to consider the cost of emissions trading in their policies to control GHG emission as almost all developed and developing countries of the world are now implementing some norms and penalty for GHG emission. The present article deals with a manufacturer–retailer supply chain model where cost of GHG emission during manufacturing process is taken into account. The profit functions of decentralized and centralized models are analyzed and compared considering emissions trading schemes. This study suggests to the manager of manufacturing firm who may apply two policies, shortages and adjustment of wholesale price, to reduce GHG emission. Although both policies are beneficial for GHG trading, the manufacturer prefers to allow shortages while the retailer prefers the other. Revenue sharing contract and asymmetric Nash bargaining strategy are used to resolve channel conflict and to share surplus profit between the channel members. Finally, a numerical example is presented to validate the proposed model.