Retailer involvement in carbon emission reduction under the Cap-and-Trade mechanism

Abstract

ABSTRACT Under the ‘ Cap-and-Trade’ mechanism of carbon emission, the low carbon management of supply chain is an indispensable link in the process of enterprise emission reduction. Constrained by carbon price and consumers’ environmental awareness, this paper establishes a two-stage game model between retailers and manufacturers under decentralized and centralized decisions. Under the decentralized decision, this paper analyzes the optimal carbon emissions before and after the transfer, the conditions of transfer and the changes of profits with the proportion of transfer. Under the centralized decision, Nash equilibrium is used to study the distribution of additional profits. Conclusions are obtained as follows. (a) There are thresholds for carbon price and consumers’ environmental awareness on carbon emissions, and the optimal emissions on both sides of the threshold will vary with the cost of emission reduction. (b) In a decentralized decision, the participation of retailers in abatement depends on the market abatement costs and abatement benefits, while a certain range of transfer rates can optimize the profitability of retailers. (c) In the centralized decision, manufacturer and retailer formulate emission reduction strategies jointly and share the extra profits equally.