Low carbon strategy analysis with two competing supply chain considering carbon taxation

https://doi.org/10.1016/j.cie.2022.108203Get rights and content

Highlights

  • Two competing supply chains under carbon taxation are studied.

  • Vertical collaboration can improve the abatement rate and decrease retail prices.

  • Horizontal collaboration hurts retailers and supply chains.

  • Two-part tariff contract is an effective tool for manufacturers to abandon horizontal collaboration.

Abstract

We investigate the carbon emission reduction efforts and pricing decisions for a two chains system under carbon taxation. In this system, each chain consists of a retailer, who acts as a follower and a manufacturer who acts as a leader. Moreover, we consider two situations: in the vertical orientation, two manufacturers individually make carbon reduction decisions; in the horizontal orientation, two manufacturers make carbon emission abatement decisions simultaneously. Besides, comparison of the optimal solutions are discussed under two situations, the results indicate that: (1) the government can encourage manufacturers to optimize the abatement rate of their products by imposing appropriate carbon taxes under two situations. (2) As long as carbon taxation occurs, each supply chain members’ vertical collaboration will drop carbon emission rate and product price. (3) When each chain is a decentralized system, although the horizontal collaboration between manufacturers improves the abatement rate of products, it reduces both retailers’ profits and customers’ interests. (4) The two-part tariff contract proposed by the downstream retailers can induce the two manufacturers to abandon their collaboration. This contract can not only realize Pareto improvement for supply chain members, but also protect the environment because of the larger abatement rate. (5) When the fixed fee falls into a certain range, the two-part tariff contract can yield a larger system benefit.

Introduction

It is now accepted fact that global warming is mainly caused by large amount of carbon emissions (Xu et al., 2017, Marchi et al., 2019). As a result, various environmental policies and regulations are passed by many countries so as to curb carbon emissions of firm production. Carbon tax policy, which follows the “Polluter-Pays Principle”, is generally accepted by many counties and regional organizations to abate carbon emissions. In the Europe, Canada, US, India and Japan, carbon tax has been widely carried out (Anderson and Lohof, 1997, Baranzini et al., 2000, Nakata and Lamont, 2001, BC, 2008, Bureau, 2011). In addition, since January 2018, China has charged a carbon tax at $ 0.2 and $ 0.7 per unit for water and air polluters, respectively (Wesseh & Lin, 2018). Further, the empirical evidence indicates that carbon tax is a powerful policy mechanism, but the less negative impact on economic growth (Liu, Hu, Zhao, Lang, Guo, Florence, & Zhang, 2020). Hence, levying carbon tax is an important step in reducing carbon emissions.

As for polluters, in order to survive in the market competition, they are often willing to adopt green technologies to reduce the carbon emission level and cost in production. For example, in the home electronics and appliance industry, Haier, Gree and Midea apply green technologies to develop and design energy-saving products, which also continuously enhance their creativity and competitiveness (Kumar, Jain, & Kumar, 2014). Meanwhile, faced with the intensification of global economic competition, the competition between supply chain channel structures is also becoming more and more intense. In such situation, how to select a suitable collaboration mechanism to eliminate their competition will be crucial. The simulation experiment indicates that collaboration can enhance the sustainability performance of a supply chain and social welfare because it can reduce or even eliminate the double marginalization effect of the supply chain (Yang & Lin, 2020). Therefore, it is necessary to establish a proper coordination contract (wholesale price, cost sharing or two-part tariffs) that is conducive to the coordination of upstream and downstream members of the supply chain.

Better supply chain performance can be realized if incentive contracts are adopted to motivate supply chain members to make carbon emission reduction efforts. These incentives are achieved through different coordination schemes, in which wholesale price, cost sharing, revenue sharing and two part tariff contracts have been studied extensively in the green supply chain literatures (Ren et al., 2015, Xu et al., 2017, Yang and Chen, 2017, Hong and Guo, 2018).

It is of great practical significance to study the green supply chain with competitive factors. Consumer concerns about the environment are also prompting more companies to set abatement targets. For example, in October 2008, Wal-Mart asked 100 suppliers in China to reduce waste and emissions, reduce packaging costs by 5% by 2013, and improve energy efficiency of products supplied to Wal-Mart stores by 25% within three years through green technology (Yenipazarli, 2017). On the one hand, as a downstream firm, the retailer has an incentive to promote green supply chain for achieving higher environmental and social goals, thus promoting the upstream firm to produce more green product. on the other hand, On the other hand, in recent years, with the continuous improvement of consumers' environmental consciousness, their demand for green products is also growing. Base on the above facts, the simple price competition between firms has been transformed into the competition that considers both price and low-carbon environmental protection level. When the market structure changes from a single supply chain to a multi-supply chain, the supply chain members’ decision will get more complex. Hence, it is more realistic to study the price and abatement investment decisions in competing supply chain. Considering the above situation, this paper attempts to study two competing supply chains under carbon tax policy, in which includes a downstream retailer and an upstream manufacturer in each chain. In the vertical orientation, it can be assumed that the upstream manufacturer is a Stackelberg leader. In the horizontal orientation, two upstream manufacturers make simultaneous abatement decisions. We try to answer the following questions: How do the vertical and horizontal collaboration of the supply chain members affect abatement decisions? Which collaboration can bring a higher supply chain profit? How should the government set up a reasonable carbon tax to stimulate manufacturers' motivation for reducing emissions in different orientation collaboration? If collaboration fails to satisfy supply chain members, is there a suitable contract that can not only improve the carbon emission reduction rate of products, but also achieve a win–win situation for supply chain members?

To answer the above questions, we consider the carbon emission reduction and pricing decisions in two independent green supply chains when carbon tax exists. In our setting, we also study two cases, including collaboration between manufacturers and collaboration between the manufacturer and the retailer in each chain. Our results indicate that: Firstly, the abatement rate of green product increases first and then decreases in carbon tax, which means when the government sets a proper carbon tax, two manufacturers will reduce the carbon emission level as large as possible. Secondly, the abatement rate of green product decreases in the green competition degree, which shows the degree of tough green competition can reduce manufacturers' incentive to reduce emissions. Thirdly, collaboration between upstream manufacturers not only reduces the benefits of downstream enterprises, but also damages environment with the lower abatement rate. Finally, in each chain, the centralized decision-making system is a dominant decision to realize the overall performance of the supply chain.

The remainder of this study is organized as follows. The related research is reviewed in Section 2. The problem description and notations are introduced in detail in Section 3. In Section 4, we establish vertical and horizontal collaboration models and compare the equilibrium outcomes among different models under carbon tax. Finally, the conclusion and the future research directions are shown in Section 5. All the proofs are exhibited in Appendix A.

Section snippets

Literature review

There are two research directions in the literature associated with our study, namely, low-carbon supply chain management under carbon tax or pollution tax, competition and collaboration between the supply chains, and low carbon supply chain coordinating adopting two-part tariff contract. A summary of the related literature is summarized in Table 1 in order to compare previous studies and position this study.

Problem description and notations

Considering that two competing supply chains, each one consisting of a manufacturer and a retailer. In each green supply chain, the manufacturer produces the green product to the retailer, and the retailer sells it to market. Additionally, faced with environmental pollution pressure, more and more consumers are willing to pay higher prices for green product, and government has an incentive to levy a carbon tax t for each unit carbon emissions on manufacturers so as to reduce the carbon

Models and results comparison

In the section, the two competing supply chains (supply chains 1 and 2) are considered. In chain 1 or 2, the manufacturer produces a substitutable green product to the retailer, and the retailer sells it to market. The two supply chains compete on the carbon emission abatement level of the product, which is invested in the low-carbon technology and determined by the upstream manufacturer. Additionally, the three models are considered as follows, such as vertical structure cases, horizontal

Conclusion

This paper studies the impact of carbon tax on carbon emission reduction and pricing decisions of two competing supply chains, which includes a manufacturer and a retailer in each chain. In the vertical supply chain structure, the manufacturer possesses the first-mover advantage in supply chain decision-making. In the horizontal supply chain structure, two manufacturers invest in their abatement efforts simultaneously. We derive the corresponding equilibrium outcomes with vertical and

CRediT authorship contribution statement

Wei Yu: Conceptualization, Methodology, Software. Yan Wang: Writing – original draft, Writing – review & editing. Wenrui Feng: Supervision, Visualization. Lei Bao: Software, Validation. Ruizhu Han: Writing – review & editing.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgement

The authors would like to thank the Editor-in-Chief, Professor Mohamed Dessouky, the Editorial Board, and the two anonymous referees for their valuable comments and suggestions which have significantly improved the quality of the paper.

This research was partially supported by the National Natural Science Foundation of China (No. 71390335), and Science and Technology Research Project of Education Department of Jiangxi Province, China (GJJ210529 and GJJ200513).

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