Multi-product pricing and carbon allocations under cap-and-trade regulation and uncertain carbon market

Zepeng Wang, Jianghua Wu and Chenchen Zhao

International Journal of Production Research, 2025, vol. 63, issue 22, 8475-8495

Abstract: Carbon cap-and-trade regulation and uncertain carbon prices directly impact production decisions for substitutable products and investments in carbon emissions reduction (CER). We consider a supply chain composed of a manufacturer and a retailer selling substitutable products. The manufacturer must allocate carbon quotas under carbon caps and uncertain carbon prices. Employing linear functions and game theory, this paper derives optimal decisions and examines how emission policies influence decisions on pricing and carbon allocation for high - and low-emission substitutable products. It also considers the investment in CER and the role of carbon trading markets in driving climate action. The results indicate that when the carbon cap is not stringent and the carbon footprint of low-emission products is small, higher substitutability leads to increased prices for both products and higher carbon quotas for high-emission products. Manufacturers do not typically raise wholesale prices to offset CER investments but tend to increase the carbon allocation for high-emission products as CER investment grows. Manufacturers are more likely to apply CER technologies when substitutability increases. Higher carbon prices encourage greater CER efforts. The study highlights the impacts of carbon regulations and carbon trading mechanisms on production and decisions, offering insights for policymakers.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2025.2512446 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:tprsxx:v:63:y:2025:i:22:p:8475-8495

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

DOI: 10.1080/00207543.2025.2512446

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().