Manufacturers' emission reduction investment strategy under carbon cap-and-trade policy and uncertain low-carbon preferences

Abstract

PurposeThis paper aims to find optimal emission reduction investment strategies for the manufacturer and examine the effects of carbon cap-and-trade policy and uncertain low-carbon preferences on emission reduction investment strategies.Design/methodology/approachThis paper studied a supply chain consisting of one manufacturer and one retailer, in which the manufacturer is responsible for emission reduction investment. The manufacturer has two emission reduction investment strategies: (1) invest in traditional emission reduction technologies only in the production process and (2) increase investment in smart supply chain technologies in the use process. Then, three different Stackelberg game models are developed to explore the benefits of the manufacturer in different cases. Finally, this paper coordinates between the manufacturer and the retailer by developing a revenue-sharing contract.FindingsThe manufacturer's optimal emission reduction strategy is dynamic. When consumers' low-carbon preferences are low and the government implements a carbon cap-and-trade policy, the manufacturer can obtain the highest profit by increasing the emission reduction investment in the use process. The carbon cap-and-trade policy can encourage the manufacturer to reduce emissions only when the initial carbon emission is low. The emission reduction, order quantity and the manufacturer's profit increase with the consumers' low-carbon preferences. And the manufacturer can adjust the emission reduction investment according to the emission reduction cost coefficient in two processes.Originality/valueThis paper considers the investment of emission reduction technologies in different processes and provides theoretical guidance for manufacturers to make a low-carbon transformation. Furthermore, the paper provides suggestions for governments to effectively implement carbon cap-and-trade policy.