Operational decisions of green supply chain under financial incentives with emission constraints

This paper investigates how financial incentives with emission reduction constraints affect the operational de-cisions and environmental performance of the capital-constrained supply chain. Two financial incentives are explored: green credit subsidies and price-based incentives. We conduct game-theoretic models to examine the characteristics and effects of two financial incentives on the supply chain under high emission restriction (HER) and low emission restriction (LER) conditions. Our results reveal that: (1) both the incentive policies fail under excessively stringent emission restrictions and generate lower optimal profit for supply chain members under HER condition; (2) both financial incentives can transform the heavy polluting manufacturer under HER eligible for LER condition; the optimal emission reduction level only touches the passing level of emission requirements under HER condition, while increasing with the government subsidies under the LER condition; (3) under the LER condition, green credit subsidies policy is efficient at increasing social welfare, while price incentives are better at increasing supply chain profits. Further, we demonstrate that it is less expensive for the government to provide subsidies to banks that require compliance with environmental regulations as a precondition of green loans in most cases. Our findings have significant implications for the government in developing more refined policies to reconcile incentives and constraints on emissions reductions.

Automated summary

This paper investigates the impact of financial incentives with emission reduction constraints on the operational decisions and environmental performance of the capital-constrained supply chain. It is found that both green credit subsidies and price-based incentives are ineffective under excessively stringent emission restrictions, resulting in lower profits for supply chain members. However, under low emission restriction conditions, green credit subsidies are efficient at increasing social welfare, while price incentives are better at increasing supply chain profits. These findings have significant implications for the government in developing refined policies for emissions reductions.