The impacts of retailer's carbon tax on the price and carbon reduction decisions in supply chain

Abstract

Under the path of environmental-friendly development, retailers gradually play a significant role on curbing carbon emissions in supply chains, and carbon tax for retailers (RCT) could be promising. At the same time, consumers are increasingly inclined to have environmental awareness (CEA). In this paper, we investigate the impacts of RCT on a two-echelon supply chain, along with the coordination of the firms when RCT are present. For the cases with and without RCT, in a carbon-sensitive market, we examine and compare the optimal pricing and carbon reduction decisions, the firms’ profits, consumer surplus and the social welfare. The key findings are listed below. First, the presence of RCT always increases the retailer’s carbon reduction effort, but does not necessarily increase that of the manufacturer, depending on the retailer's carbon reduction investment cost factor (CRICF). Second, RCT will magnify the impacts of the retailer's CRICF on consumer demand, the manufacturer's profit and consumer surplus. Third, analytical and numerical results suggest that the retailer's CRICF is a critical factor for the impacts of RCT on the supply chain, as the firms and the society will benefit from RCT only when the retailer's CRICF is relatively low. Lastly, a two-part tariff contract can coordinate the supply chain, where the carbon reduction efforts of the two firms are equal to those in centralized decision making scenario.