Buyer-Backed Purchase Order and Advance Payment Discount Financing Under Carbon Trade Revenue-Sharing Contract

Guozhao Cao and Yanqing Zhang

SAGE Open, 2024, vol. 14, issue 2, 21582440241244933

Abstract: The promotion of low-carbon production is a crucial aspect of sustainable development, and carbon trading has proven to be an effective means of achieving this goal. However, the limited capital hinders small and medium-sized enterprises (SMEs) from achieving low-carbon production. Thus, this paper examines a low-carbon supply chain comprising a financially constrained manufacturer and a well-funded retailer. We propose a game-theoretical model that addresses the financial constraints of the manufacturer through buyer-backed purchase order financing (BPOF) or advance payment discount (APD) with carbon trading revenue-sharing contracts. We investigate the determination of pricing and carbon emission reduction strategies by firms utilizing diverse financing models. We find that the total amount of carbon emission reduction increases with the manufacturer’s carbon trade revenue-sharing ratio. The financing rate of BPOF has a negative impact on the amount of carbon emission reduction, while the discount rate of APD will not affect either the carbon emission reduction or the revenue of the supply chain. Among the two financing strategies, APD is optimal for maximizing profit and promoting low-carbon development throughout the supply chain.

Keywords: low-carbon; carbon cap-and-trade; supply chain financing; revenue-sharing contract; buyer-backed purchase order financing; advance payment discount (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:14:y:2024:i:2:p:21582440241244933

DOI: 10.1177/21582440241244933

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