Impacts of Supply Chain Competition on Firms’ Carbon Emission Reduction and Social Welfare under Cap-and-Trade Regulation

Abstract

In the carbon neutrality era, firms are facing increasingly intense environmental pressure and market competition. This paper considers two competitive supply chains with consumers’ low-carbon preference under the cap-and-trade regulation, each of which consists of one manufacturer and one retailer. Considering competition or integration in vertical and horizontal directions, four different supply chain structures are modeled. By applying a game-theoretical approach, the equilibrium pricing, carbon emission reduction (CER) level, profit, and social welfare are obtained. Through comparison and analysis, the economic and environmental impacts of supply chain competition are explored. The results show that (1) the carbon quota acts as a kind of financial subsidy and brings direct economic profit to the supply chain, which cannot be used to incentivize the firm to invest in CER technology; (2) the HCVI strategy can bring the highest CER level, the most market demand, and social welfare among the four strategies; (3) for the enterprise and the government, it is recommended to take measures and enact policies to strengthen the vertical integration and horizontal competition between supply chains. Our study can guide firms on how to cope with increasingly fierce industry competition and environmental pressure by adjusting their operational decisions and supply chain structure.

Manufacturer’s Encroachment and Carbon Emission Reduction Decisions Considering Cap-and-Trade Regulation and Consumers’ Low-Carbon Preference

“…When a manufacturer’s initial carbon emissions are too low or too high, cap-and-trade regulation can make the manufacturer get more profits. This result is inconsistent with the conclusion of Xue et al [ 9 ]. The author demonstrated that a manufacturer favors the government’s carbon quotas in the single-channel supply chain.…”

“…Therefore, the conclusion of this paper may have a breakthrough based on all the above articles. In terms of the carbon emission reduction result, the author of the article (Xue et al [ 9 ], Xu et al [ 32 ], Ji et al [ 30 ]) believes that increasing consumers’ low-carbon preference can always help the manufacturer reduce carbon emissions. This paper determines the threshold of the carbon price and consumers’ low-carbon price and compares the carbon emission reduction level in the encroachment and no-encroachment scenarios.…”

“…On the contrary, extra parts should be purchased in the carbon trading market if exceeding the quota. In China, the Environment and Energy Exchange for carbon emission trading was launched in Shanghai, and carbon trading markets were developed in Chongqing, Tianjin, Beijing, and Guangdong [ 9 ]. Other countries have also legislated the cap-and-trade regulation, including the United States, India, and the Netherlands [ 10 ].…”

Incentive Mechanisms for Carbon Emission Abatement Considering Consumers’ Low-Carbon Awareness under Cap-and-Trade Regulation

“…In Strategies PO, CS, RS, and BS, the carbon quota given by the government has no impact on the equilibrium decisions of the low-carbon supply chain. A larger carbon quota can bring the manufacturer more profits while not affecting the retailer’s profit, which is similar to the findings of Xue and Sun [ 9 ]. Consumers’ higher low-carbon awareness can promote the manufacturer to invest more in CEA technology, thus increasing the manufacturer’s CEA level and the supply chain profit.…”

“…Under the cap-and-trade rule, the government assigns a carbon emission cap for a firm, and the firm can sell redundant or buy extra emission permits on the carbon trading market. Many countries, such as the EU and China, have established their own carbon trading markets to curb carbon emissions [ 8 , 9 ].…”