Does the carbon trading mechanism affect social and environmental benefits of the retailer-led supply chain: Strategic decisions of emissions reduction and promotion

Abstract

Governments, enterprises, and customers have become more concerned about environmental protection. Following the world’s largest carbon trading market (EU ETS), China has also implemented a market-based carbon trading mechanism (CAT) to reduce CO2. Simultaneously, customers have low-carbon preferences for environmental products. Thus, the enterprises’ strategic decisions and collaboration modes have changed. This article develops the Stackelberg game model to explore the impacts of CAT and customers’ low-carbon preference on the carbon emission reduction and promotion strategies in a retailer-led supply chain (such as RT-Mart, Walmart, Amazon, etc.). In this model, the retailer decides whether to promote environmentally safe products and the manufacturer decides whether to reduce CO2. We find that carbon trading market price and customers’ low-carbon preference are key factors influencing the retail price, total carbon emissions, and social welfare. Interestingly, there is not always a positive correlation between customers’ low-carbon preference and social welfare. To achieve Pareto improvement of social welfare, manufacturers and retailers require co-optimization. Theoretically, our research enriches the research streams of the CAT policy and socially responsible operations of the supply chain. Moreover, managerial insights are provided for retailer-led supply chain stakeholders and emission reduction regulators, which contribute to enhancing the social and environmental benefits of the supply chains.