Pricing and Carbon Emission Strategy of Supply Chain with Cap and Trade

Abstract

Low-carbon economy is the trend of economic development in the future. It is gradually becoming a hot topic in academic and business circles that how to reduce carbon emissions. Cap and trade is one of the effective ways to reduce carbon emissions and has been adopted by many countries. We investigate a two-echelon supply chain that consists of a supplier and a manufacturer. This paper assumes a vertical Nash game between the two sides. We study three different models on cap and trade policy, which are the independent carbon reduction model and the concentrated models (only the supplier faces cap and trade and only the manufacturer faces cap and trade). We obtain the optimal decisions and unit carbon emissions of the supplier and the manufacturer. The optimal wholesale price, sale price, unit carbon emission and maximum profit under different cap and trade models have be compared by numerical analysis. We find that concentrated carbon reduction models are beneficial for supply chain enterprises, but as the price is creating more carbon emissions than the independent model. This study provides valuable managerial implications, which will be beneficial for firms to make an important strategy.