Supply chain low-carbon cooperation under the partially paid carbon allowances policy: a dynamic perspective

The transition from free towards partially paid carbon allowances allocation under the cap-and-trade is reshaping industrial practices. This study constructs a supply chain model involving a high-emission supplier and a manufacturer to analyse low-carbon performance and policy effectiveness from a dynamic perspective. To address production bottlenecks caused by carbon allowance constraints, we propose an innovative cooperative approach where surplus carbon allowances are transferred from the supplier to the manufacturer, along with joint investments in emission reduction. The necessary conditions for achieving such cooperation are explored. We find that despite potential disincentives for paid allowances, policymakers can stimulate emission reduction by tightening carbon allocation when the auction price is sufficiently high. When the supplier improves the emission reduction investment, surplus allowances are accumulated in scenarios of high market demand. However, in the later stages of the investment, these surplus allowances gradually decrease until exhausted due to the declining efficiency of the reduction technology over time. Based on the sustainable accumulation of surplus carbon allowances, successful cooperation also depends on unit profit latitude from low-carbon product sales and the maturity of emission reduction technology. Numerical examples provide a comprehensive analysis of the temporal and policy-related effects on supply chain performance.