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http://dx.doi.org/10.7232/JKIIE.2015.41.3.243

Supply Chain Coordination Under the Cap-and-trade Emissions Regulation  

Min, Daiki (School of Business Ewha Womans University)
Publication Information
Journal of Korean Institute of Industrial Engineers / v.41, no.3, 2015 , pp. 243-252 More about this Journal
Abstract
This paper considers a supply chain consisting of a manufacturer under the cap-and-trade emissions regulation and a permit supplier. We study joint production quantity and investment in reducing permit production cost decisions for centralized and decentralized supply chains. We formulate two supply chain contracts with aims to coordinate the decentralized supply chain; wholesale price contract and cost-sharing contract. Under the cost-sharing contract, the manufacturer shares a part of the investment in reducing permit production cost and then is allowed to purchase emission permit at a lower price. We analytically find that the proposed cost-sharing contract with reasonable parameters can coordinate the supply chain whereas the wholesale price contract is not desirable to achieve the system-wide profit. Numerical example is followed to support the analysis.
Keywords
Cap-and-trade emissions regulations; Carbon offset; Supply chain coordination; Cost-sharing contract; Investment in cost reduction;
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