Low-Carbon Supply Chain Management Considering Free Emission Allowance and Abatement Cost Sharing

Peng Wu, Yixi Yin, Shiying Li and Yulong Huang
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Peng Wu: Business School, Sichuan University; Chengdu 610064, China
Yixi Yin: Business School, Sichuan University; Chengdu 610064, China
Shiying Li: School of Public Administration, Sichuan University, Chengdu 610064, China
Yulong Huang: Business School, Sichuan University; Chengdu 610064, China

Sustainability, 2018, vol. 10, issue 7, 1-18

Abstract: As people concern themselves with environmental problems, the right to emit carbon dioxide becomes a new resource with business value that is incorporated in firms’ budgets. This paper studies the optimal emission abatement decision for firms in a supply chain, considering emission costs. Four Stackelberg models are established that differ in free emission allowance allocation schemes and emission abatement cost-sharing schemes. On comparing optimal solutions in the models, the results show that regardless of which free emission allowance allocation scheme or emission abatement cost-sharing scheme is adopted, upstream firms tend to set a higher emission reduction rate. If supply chain firms aim for a higher emission reduction rate, they should advocate that upstream and downstream firms establish emission abatement cost-sharing contracts. The upstream firms should undertake larger emission reduction costs, and use free emission allowance allocation schemes based on emission intensity; the optimal emission reduction rate is related to carbon price, and the relationship may not be monotonous, affected by the difficulty of reducing emissions.

Keywords: free emission allowance; emission reduction rate; supply chain; cost sharing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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