Impacts of Supply Chain Competition on Firms’ Carbon Emission Reduction and Social Welfare under Cap-and-Trade Regulation

Abstract

In the carbon neutrality era, firms are facing increasingly intense environmental pressure and market competition. This paper considers two competitive supply chains with consumers’ low-carbon preference under the cap-and-trade regulation, each of which consists of one manufacturer and one retailer. Considering competition or integration in vertical and horizontal directions, four different supply chain structures are modeled. By applying a game-theoretical approach, the equilibrium pricing, carbon emission reduction (CER) level, profit, and social welfare are obtained. Through comparison and analysis, the economic and environmental impacts of supply chain competition are explored. The results show that (1) the carbon quota acts as a kind of financial subsidy and brings direct economic profit to the supply chain, which cannot be used to incentivize the firm to invest in CER technology; (2) the HCVI strategy can bring the highest CER level, the most market demand, and social welfare among the four strategies; (3) for the enterprise and the government, it is recommended to take measures and enact policies to strengthen the vertical integration and horizontal competition between supply chains. Our study can guide firms on how to cope with increasingly fierce industry competition and environmental pressure by adjusting their operational decisions and supply chain structure.