Green Investment and Emission Reduction in Supply Chains Under Dual-Carbon Regulation: A Dynamic Game Perspective on Coordination Mechanisms and Policy Insights

Dandan Wu (), Kun Li () and Yang Cheng
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Dandan Wu: School of Economics and Management, China University of Petroleum, Qingdao 266580, China
Kun Li: School of Architectural Engineering, Qingdao Institute of Technology, Qingdao 266300, China
Yang Cheng: Department of Materials and Production, Aalborg University, 9220 Aalborg, Denmark

Sustainability, 2025, vol. 17, issue 19, 1-32

Abstract: This study examines green investment and emission reduction strategies in a two-tier supply chain under dual-carbon regulation that combines a carbon tax with a cap-and-trade mechanism. A multi-stage dynamic game model is developed, in which the manufacturer reduces emissions through recycling efforts and investments in green technology. We compare optimal decisions under centralized, decentralized, and coordinated structures, and propose an enhanced bilateral cost-sharing contract to improve collaboration. Numerical experiments validate the theoretical results, and sensitivity analyses provide further insights. The results show that while both carbon tax and permit trading increase emission reduction, the carbon tax may lower manufacturer profit, underscoring the need for coordinated policy design. Benchmarking proves more effective than grandfathering in stimulating green investment, particularly under high carbon prices and strong consumer environmental preferences. The proposed contract alleviates free riding, enhances overall supply chain profitability, and improves emission reduction performance. Policy implications highlight the importance of prioritizing benchmark allocation, promoting consumer environmental awareness, and encouraging firms to integrate carbon asset management with technological innovation. This research provides both theoretical and practical insights for designing effective carbon policies and collaborative mechanisms in green supply chains.

Keywords: carbon tax; cap-and-trade mechanism; green technology investment; supply chain coordination (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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