Abstract
Climate change is mainly caused by excessive emissions of carbon dioxide and other greenhouse gases. In order to reduce carbon emissions, cap and trade policy is implemented by governments in many countries, which has significant impacts on the decisions of companies at all levels of the low carbon supply chain. This paper investigates the decision-making and coordination of a low carbon supply chain consisting of a low carbon manufacturer who produces one product and is allowed to invest in green technology to reduce carbon emissions in production and a retailer who faces stochastic demands formed by homogeneous strategic customers. We investigate the optimal production, pricing, carbon trading, and green technology investment strategies of the low carbon supply chain in centralized (including Rational Expected Equilibrium scenario and quantity commitment scenario) and decentralized settings. It is demonstrated that quantity commitment strategy can improve the profit of the low carbon supply chain with strategic customer behavior. We also show that the performance of decentralized supply chain is lower than that of quantity commitment scenario. We prove that the low carbon supply chain cannot be coordinated by revenue sharing contract but by revenue sharing-cost sharing contract.
Highlights
In recent years, global warming resulting from excess emissions of carbon dioxide and other greenhouse gases has been challenging the survival and development of human beings, leading to serious consequences like droughts, heat waves, sea level rise, intense rainfall, and so forth
We investigate the optimal production, pricing, carbon trading, and green technology investment strategies of the low carbon supply chain in centralized and decentralized settings
Proposition 7 shows that quantity commitment (QC) strategy can improve the manufacturer’s maximum expected profit when green technology investment and cap and trade policy are taken into account
Summary
Global warming resulting from excess emissions of carbon dioxide and other greenhouse gases has been challenging the survival and development of human beings, leading to serious consequences like droughts, heat waves, sea level rise, intense rainfall, and so forth. Green technology investment will increase production cost and can save carbon emissions for businesses and get additional revenue. Under the cap and trade policy, study on low carbon supply chain operation strategies optimization with green technology investment is of great theoretical value. The production, pricing, carbon trading, and green technology investment problems are examined in a supply chain setting made up of a retailer and a manufacturer. The manufacturer can invest in green technology to reduce unit carbon emissions of the product and distribute the product to strategic customers through the retailer. (1) In centralized supply chain setting, what is the optimal production quantity, pricing, carbon trading strategy, and green technology investment?.
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