Carbon emission reduction decisions of supply chain members under cap-and-trade regulations: A differential game analysis

A global consensus has been reached that carbon emission reduction is now an inevitable social trend. A manufacturer can reduce its direct carbon emission by itself and indirect carbon emission by cooperating with suppliers. In a low-carbon context, we investigate a detailed model that combines cap-and-trade regulations with the low-carbon preferences of consumers. In this research, differential game models are developed to study the emission reduction decisions of two supply chain members under three scenarios: (1) a non-cooperation (coop) scenario where the manufacturer makes a decision on its level of effort in carbon emission reduction and the supplier is followed; (2) a coop program scenario in which the supplier's emission reduction efforts are supported by the manufacturer; and (3) a two-way coop contract scenario in which both supply chain members support each other's emission reduction efforts. A comparative study is conducted on supply chain members' carbon emission reduction efforts and optimal profits obtained under the above scenarios. The results indicate that under the two-way coop contract scenario, both supply chain profits and emission reduction levels are the largest, with the greatest efforts made by channel members. In contrast to the non-coop scenario, both firms make more emission reduction efforts and earn more profits under the coop program scenario.

Automated summary

The study explores the game behavior of manufacturers and supply chain members in emission reduction decisions, finding that in the two-way coop contract scenario, both emission reduction levels and profits are maximized with the greatest efforts from all parties. Compared to the non-cooperation scenario, both firms make more emission reduction efforts and earn more profits under the coop program scenario.