Emissions reduction strategy in a three-stage agrifood value chain: A dynamic differential game approach

Abstract

Agrifood systems account for 31% of global greenhouse gas emissions. Substantial emissions reduction in agrifood systems is critical to achieving the temperature goal set by the Paris Agreement. A key challenge in reducing GHG emissions in the agrifood value chain is the imbalanced allocation of benefits and costs associated with emissions reduction among agrifood value chain participants. However, only a few studies have examined agrifood emissions reduction from a value chain perspective, especially using dynamic methods to investigate participants’ long-term emissions reduction strategies. This paper helps fill this gap in the existing literature by examining the impact of collaborations among agrifood value chain participants on correcting those misallocations and reducing emissions in agrifood systems. We develop a dynamic differential game model to examine participants’ long-term emissions reduction strategies in a three-stage agrifood value chain. We use the Hamilton-Jacobi-Bellman equation to derive the Nash equilibrium emissions reduction strategies under non-cooperative, cost-sharing, and cooperative mechanisms. We then conduct numerical analysis and sensitivity analysis to validate our model. Our results show that collaboration among value chain participants leads to higher emissions reduction efforts and profits for the entire value chain. Specifically, based on our numerical results, the cooperative mechanism results in the greatest emissions reduction effort by the three participants, which leads to a total that is nearly three times higher than that of the non-cooperative mechanism and close to two times higher than the cost-sharing mechanism. The cooperative mechanism also recorded the highest profits for the entire value chain, surpassing the non-cooperative and cost-sharing mechanisms by around 37% and 16%, respectively. Our results provide valuable insights for policymakers and agrifood industry stakeholders to develop strategies and policies encouraging emissions reduction collaborations in the agrifood value chain and reduce emissions in the agrifood systems.