Supply chain coordination with green technology under cap-and-trade regulation

Abstract Cap-and-trade regulation is generally accepted as one of the most effective market-based mechanisms to curb carbon emissions. In this paper, we study the production and emission abatement decisions of a Make-To-Order supply chain consisting of a manufacturer and a retailer under cap-and trade regulation. Specifically, the manufacturer can reduce unit product carbon emission by using green technology, with the cooperation of a retailer by certain contracts, who sell the products to environment-concerned consumers. Wholesale price and cost sharing contracts are considered in the supply chain. We list some main conclusions here. First, as carbon trading price increases, the optimal production quantities (the optimal abatement levels) firstly decrease (increase) and then remain constant. Second, both wholesale price and cost sharing contracts can coordinate the supply chain. Last, combining the optimal operational decisions under the two contracts with two-part tariff agreement, we design a contract in which the retailer pays a lump fee to the manufacturer, and find that there is an interval of the lump fee to achieve Pareto improvement for the two firms.