Emission reduction levels of manufacturers under carbon trading policies

Abstract

Considering the policies surrounding carbon trading, decarbonization plans have been regarded as imperative choices for the manufacturing industry. However, there has been little research into combining the concrete carbon quota allocation methods with the low-carbon supply chain. Still, the distinction between ordinary and low-carbon manufacturers has been scarcely investigated. To fill these gaps, drawing on two quota allocation methods—grandfathering and benchmarking, we model the supply chains under two production modes, which consists of an ordinary manufacturer, a low-carbon manufacturer and a hybrid manufacturer. Our primary conclusions are listed here. The carbon emission reduction level (CERL) shall fluctuate within an acceptable scope to prevent adverse consequences on total social welfare. Additionally, independent of the production mode, manufacturers' profits will peak when the gross carbon quotas meet certain values under grandfathering. Meanwhile, under benchmarking, the environmental performance and consumer surpluses are better when the benchmark quota reaches a certain value.