Emission-dependent Supply Chain Research Articles

Evolutionary game analysis of emission-dependent supply chain carbon abatement behaviours considering cap-and-trade mechanism

Evolutionary game analysis of emission-dependent supply chain carbon abatement behaviours considering cap-and-trade mechanism

Financing decision for an emission‐dependent supply chain with capital constraints

In this paper, we study the financing decision for an emission-dependent supply chain with one supplier and one manufacturer, both of which are financially constrained and in need of short-term financing for emission abatement. Three kinds of financing strategies are considered: (1) bank financing separately (BFS), (2) the manufacturer obtains partial loans from the bank, and borrows from the supplier (MPB), (3) the supplier obtains partial loans from the bank, and borrows from the manufacturer (SPB). The BFS is viewed as a noncollaborative financing strategy, and the MPB and SPB are collaborative financing strategies. The financing strategies are obtained at the point where wholesale price, production quantity, and emission reduction are endogenously determined. We found that the collaborative financing strategy is beneficial to the supplier and the whole supply chain compared with the noncollaborative financing strategy, the SPB strategy may outperform the MPB strategy for the supplier and the whole supply chain, depending on sharing proportion. The advantage of the MPB and SPB strategies relative to the BFS strategy mainly depends on sharing proportion from the manufacturer's perspective. We demonstrated that the collaborative financing strategy is the equilibrium strategy of the emission-dependent supply chain under certain conditions.

Joint decision of financing and ordering in an emission-dependent supply chain with yield uncertainty

This paper studies the manufacturer’s financing and ordering decisions and the supplier’s price-making decision with or without carbon abatement investment in a two-echelon supply chain consisting of a dominant supplier and a manufacturer, when the product yield is uncertain and consumers have low carbon preferences. The results show that under the cap-and-trade scheme, regardless of whether investment in carbon emission reduction are considered, the manufacturer’s financing decision depends on the initial working capital. Further, the yield uncertainty and carbon abatement investment affect the selection of financing equilibrium. The ordering quantity and performance of supply chain members decrease with the yield uncertainty, but the supplier’s wholesale price has no relation to the yield uncertainty and low-carbon preference. We also compare the results of different financing modes with or without carbon emission reductions, and we analyse the influences of important parameters on decisions and performance of supply chain members. The numerical results are used to verify the theoretical results.

Optimal Operation Strategies under a Carbon Cap-and-Trade Mechanism: A Capital-Constrained Supply Chain Incorporating Risk Aversion

Many small and medium enterprises (SMEs) with capital constraints often have no access or find it costly to obtain a loan from a bank; the retailer tends to borrow money from other enterprises in the supply chain by trade credit financing. We consider an emission-dependent supply chain with one emission-dependent manufacturer and one capital-constrained retailer in need of financing to explore the optimal operational and environmental strategies of a low-carbon supply chain under trade credit financing. We use a Stackelberg game model to depict the low-carbon supply chain. We analyse the optimal carbon-emission reduction effort, wholesale price, and order quantity in the equilibrium state. The impacts of key parameters, such as the retailer’s internal working capital, the manufacturer’s risk-aversion degree, and the carbon-trading price on the supply chain operation, are analysed. The results show that the retailer’s capital constraint causes the carbon-emission reduction effort, wholesale price, and order quantity to improve synchronously. The supply chain achieves a win-win outcome for both the manufacturer and the retailer when the capital-constrained retailer is funded via trade credit from the manufacturer. The in-depth development of financing is beneficial to the manufacturer but is a disadvantage for the retailer. When the initial carbon-emission quota is low, the manufacturer benefits from a relatively lower carbon-trading price. Otherwise, a higher carbon-trading price is better for the manufacturer. The “carbon-trading price trap” ensures that the retailer’s profit is minimal. We further investigate the scenario in which the manufacturer is risk averse and find that the retailer will purchase fewer products and that the manufacturer will gain less profit to decrease the carbon-emission reduction effort. The manufacturer’s risk aversion is unfavourable to both the economic and environmental outcomes of the whole supply chain. This research provides strategic support for a low-carbon supply chain to carry out operational decisions in the context of enterprise capital constraint. To examine the theoretical results, the data used in the existing literature are further used to simulate the corresponding conclusions. Our research enriches the existing supply chain finance literature and provides decision support for the supply chain core enterprise.

Partial credit guarantee and trade credit in an emission-dependent supply chain with capital constraint

This study investigates a supply chain financing (SCF) system with one supplier and one emission-dependent and capital-constrained manufacturer. Unlike the traditional SCF, the manufacturer borrows two loans to execute the ordering decision and make a low-carbon investment, respectively. We derive the equilibrium strategies of the supply chain members under partial credit guarantee (PCG) and a combination of trade credit and PCG and compare with that under a benchmark (well-funded manufacturer). There exists a unique coefficient of credit guarantee for the supplier to decide whether to provide a trade credit. Numerical studies and extension are discussed to obtain more managerial implications.

Research on Operation and Financing Strategy of an Emission-Dependent Supply Chain under Variable Transportation Fee Strategy

Under the carbon cap-and-trade mechanism, we consider an emission-dependent supply chain consisting of a supplier, a manufacturer, and a 3PL firm that adopts variable transportation fee strategy. Five models on the basis of the supplier and manufacturer with or without capital constraints are considered to discuss members’ optimal decisions. The insights are obtained as follows. First, the ordering quantity under 3PL financing service is larger than that under two firms are well-funded when the transportation fee or carbon emission is less than a certain constant. The variable transportation fee strategy and members’ carbon emission reduction behavior are beneficial to each supply chain participant. Second, the carbon emissions of members decide whose capital constraint is more beneficial to 3PL firm, and 3PL prefers to cooperate with a medium rich manufacturer (rich supplier). Third, the external financing modes are analyzed to get the 3PL financing service can create new value for the manufacturer and 3PL if the transportation fee is below a threshold, and this threshold increases with the manufacturer’s carbon emission. When the transportation fee is larger than a threshold, a capital-constrained supplier will choose bank financing, and this threshold decreases with the supplier’s carbon emission. Finally, we demonstrate that the manufacturer’s loss aversion (carbon cap) can increase (decrease) its bankruptcy threshold.

Strategic information sharing and competition under cap-and-trade regulation

PurposeThe purpose of this paper is to investigate whether truthful information sharing can be achieved via informal cheap talk in a competitive setting, and how carbon emission constraint and information-sharing modes (no information sharing, partial information sharing and public information sharing) interact with each other under cap-and-trade regulation.Design/methodology/approachThis paper establishes an emission-dependent supply chain consisting of a manufacturer, an incumbent retailer who has superior demand information and a new entrant retailer. The manufacturer abates carbon emissions under the pressures of government environmental regulation and consumers’ eco-friendly concern. The research formulates a multistage game to explore every party’s decision and the implications of information-sharing modes.FindingsThe results show that truthful information sharing can be achieved when the manufacturer decides both the wholesale price and carbon emission abatement. The results also show that the incumbent retailer’s information-sharing decision highly depends on the manufacturer’s capacity in abating carbon emissions and the demand uncertainty.Originality/valueThe research adds value to information management and sustainable production literature. This work emphasizes the interaction between the information flow and material flow. Not only it investigates the factors that affect information-sharing modes from a new point of view when considering carbon emission constraint, but also provides operational strategies for manufacturers to make more profit when facing asymmetric information and emission regulation.

The bright side of carbon emission permits on supply chain financing and performance

Carbon emission constraints are usually treated as negative factors for enterprise operation, while this work finds that they could also be a source of profit if pledging the carbon emission permits becomes a part of the financial and operational decisions, which could significantly improve the supply chain performance and facilitate sustainability. Specifically, this paper considers an emission-dependent supply chain comprised of a supplier and a manufacturer who has limited capital and obtains the pledged loan by utilizing the carbon emission permits. By characterizing the participants’ optimal decision, some interesting observations can be achieved. The results show that the capital-constrained manufacturer makes more profit by pledging carbon emission permits to obtain a loan compared with having no access to borrowing money. The analysis reveals that the manufacturer may have several possible production regions based on the initial working capital and the pledged number of carbon emission permits. We also find that the production quantity is independent of the manufacturer's initial working capital and carbon emission permits in a no bankruptcy region, while the optimal production quantity decreases under the influence of carbon emission permits in a bankruptcy region. In addition, carbon emission abatement improves production quantity and enhances the manufacturer's profit. Moreover, we present some contracts that serve for coordinating the emission-dependent supply chain or realizing the Pareto improvement.

Financing preferences and performance for an emission-dependent supply chain: Supplier vs. bank

Many small and middle-sized enterprises (SMEs) with capital constraints have two primary short-term financing modes: internal financing (supplier) and external financing (bank). We consider an emission-dependent supply chain with one supplier and one emission-dependent manufacturer that are capital-constrained and in need of short-term financing. We investigate the financing preferences of the supply chain from a competitive bank or supplier when demand is uncertain and consumers have low-carbon preferences. Under the cap-and-trade system, we show that the existence of investments in carbon abatement will have no impact on the selection of financing mode. We find that the supplier's trade credit financing serves as a unique financing equilibrium for manufacturers regardless of whether investments in carbon abatement are considered. Irrespective of the chosen financing equilibrium, if a manufacturer chooses to invest in carbon abatement, the dominant supplier will offer a wholesale price to prompt the manufacturer to choose the largest feasible carbon emission reduction and maximize his profit. In addition, we present a set of numerical analyses to compare the results of different financing modes and the financing equilibrium with and without carbon abatement, and we analyze the impacts of key parameters on the performance of supply chain members.

Pricing and Low-Carbon Investment Decisions in an Emission Dependent Supply Chain under a Carbon Labelling Scheme

A low-carbon policy attracts the interests of businesses, consumers, and policy makers. The purpose of this paper is to investigate how a carbon labelling scheme could be integrated into operational decision-making for manufacturers and retailers. Three game theoretic models of a supply chain with one manufacturer and one retailer are built to investigate a manufacturer and retailer’s pricing and investment decision for products with different initial carbon footprints considering consumer environmental awareness. Through a systematic comparison and numerical analysis, the results show that a carbon labelling scheme can significantly reduce the overall carbon emission supply chain and have an initially negative impact on the manufacturer and retailer’s profits. However, in the medium–long run, manufacturers and retailers could yet achieve profitability through continuously investing in low-carbon technology.

Trade credit financing and coordination for an emission-dependent supply chain

Abstract Under carbon cap-and-trade mechanism, we investigate the interaction of financial decision and operational decision in an emission-dependent supply chain consisting of one manufacturer and one capital constrained retailer who funds her business by trade credit from the manufacturer. We find that the optimal ordering quantity is irrelevant to carbon emission cap under centralized decision. While under decentralized decision, the retailer purchases more products with less internal working capital and smaller carbon cap. We also find that the manufacturer prefers to cooperate with a medium rich retailer to earn more profit. Furthermore, a general contract (including quantity discount contract, revenue sharing contract and buyback contract) can coordinate the emission-dependent supply chain with a capital constrained retailer. When coordinating by a revenue sharing contract, the capital constrained retailer can earn more profit than the well-funded retailer. We further investigate the scenario when the retailer is loss aversion, and find that the retailer will order fewer products. Besides, under the revenue sharing contract, a higher loss aversion degree accompanies with a smaller profit sharing proportion, which implies that a manufacturer can earn more profit when cooperating with a loss aversion retailer.

Emission-dependent supply chain and environment-policy-making in the ‘cap-and-trade’ system

The paper focuses on a so-called emission-dependent supply chain consisting of one single emission-dependent manufacturer and one single emission permit supplier in the ‘cap-and-trade’ system, where emission permit becomes requisite for production. We consider the emission cap of emission-dependent manufacturer allocated by the government as a kind of environmental policy and formally investigate its influence on decision-makings within the concerned emission-dependent supply chain as well as distribution fairness in social welfare. It is proved that the system-wide and the manufacturer's profits increase with the emission cap while the permit supplier's decreases. There is room for manufacturer and permit supplier to coordinate the supply chain to get more profit in a certain condition.

Game-theoretic analysis for an emission-dependent supply chain in a ‘cap-and-trade’ system

The paper focuses on the impact of emission ‘cap-and-trade’ mechanism in a so-called emission-dependent supply chain with the emission permit supplier and the emission-dependent firm. In the cap-and-trade system, emission permit becomes one of key factors of production for emission-dependent firms. Two major sources of emission permits are considered—emission cap/quota imposed by the government, and permits purchased via emission trading. If the quota is insufficient to satisfy the target production, extra permits should be purchased via trading. In this case, the traditional non-profit green organizations may be endowed with the role of emission permit suppliers. Thus, the introduction of market mechanism injects new life into environment protection. In the context of newsvendor, the paper investigates the behavior and decision-making of each member in the emission-dependent supply chain. A game-theoretical analytical model is proposed and the unique Nash equilibrium is derived. In their own self-interest, the emission permit supplier and the emission-dependent firm make their optimal decisions on permits pricing and production quantity respectively. Players’ bargaining power in the game is affected by several exogenous factors, such as the governmental environment policy, the market risk, etc. Several valuable managerial insights on bargaining power affected by external factors (such as environmental policies, market risks, etc.) are further concluded.