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

Abstract

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.

Pricing and Coordination Decisions in a Low-Carbon Supply Chain with Risk Aversion under a Carbon Tax

“…In contrast to [39], under the two decision-making models, the wholesale price determined by the manufacturer is determined by the carbon tax rate; when the carbon tax rate is low, the wholesale price determined by risk-averse manufacturers is lower than that determined by riskneutral manufacturers; when the carbon tax rate is high, the wholesale price determined by risk-averse manufacturers is higher than that determined by risk-neutral manufacturers. Similar to [40], Corollary 1 indicates that the retail price and wholesale price of low-carbon products are affected by the manufacturer's risk aversion coefficient.…”

“…at is, as the risk aversion coefficient increases, retail prices continue to decrease. In contrast to [40], manufacturers determine that the wholesale price is affected by the risk aversion coefficient and is also affected by the carbon tax rate. When the carbon tax rate is low, as the manufacturer's risk aversion coefficient increases, the wholesale price continues to decrease; when the carbon tax rate is relatively high, as the manufacturer's risk aversion coefficient increases, the wholesale price continues to increase.…”

Optimal financing strategy in a closed-loop supply chain for construction machinery remanufacturing with emissions abatement

“…Considering the risk of financing, Huang et al [11] develop a financing framework for members in a CLSC based on three different financing methods, including trade credit financing, credit guarantee financing, and buyback guarantee financing. Qi et al [19] focus on an emission-dependent CLSC, and analyze the operational strategy of the capital-constrained retailer under trade credit financing. Shi et al [22] analyze the problem of capital-constrained newsvendor, and analyze the coordination strategies among CLSC members.…”

“…Corollary 2 shows that although the implementation of CER under different financing patterns has no effect on the total market size of products. However, the CER strategy implemented by OEMs decreases the carbon emissions of new products, thereby attracting consumers with low carbon preferences and further increasing the sales of new products in the low carbon environment [7,19]. Meanwhile, the decreasing emissions of the unit new products also weaken the low-carbon advantages of remanufactured products.…”

Coordination Decisions for a Low-Carbon Supply Chain Considering Risk Aversion under Carbon Quota Policy

“…Deng et al [ 45 ] constructed three emission reduction modes using Stackelberg game model and used CVaR criterion to measure the risk-aversion characteristics of retailers. Qi et al [ 46 ] introduced cap-and-trade system into low-carbon supply chain and studied the impact of risk aversion on supply chain financial decision-making. In general, there is little literature on introducing risk aversion into low-carbon supply chain decision-making processes.…”