Comparisons of emission trading scheme implementation modes in a low-carbon supply chain

Abstract

Emission trading scheme (ETS) is widely employed as a policy instrument in supply chain emissions management. Two modes of ETS implementation are commonly applied across supply chains: separately imposed ETS (S-ETS) and jointly imposed ETS (J-ETS). However, it is unclear how the two distinct modes of ETS implementation influence the economic and environmental performance of supply chains. This paper considers a low-carbon supply chain system comprising one supplier and one manufacturer, where all carbon emissions generated by supply chain members are constrained by ETS. By employing game theory and MATLAB numerical analysis software, this study investigates the impacts of the two ETS modalities on carbon abatement decisions, profitability and social welfare within the supply chain. Furthermore, the study examines a scenario incorporating government subsidies to enhance ETS efficiency. The results show that compared to S-ETS, J-ETS can reduce total carbon emissions of the supply chain with high carbon emission intensity. From the perspective of social welfare, J-ETS is also more advantageous for such supply chains. However, this ETS modality may negatively impact the supplier's profitability. When government subsidies are introduced into J-ETS, coordinated improvements in the economic and environmental performance of the supply chain can be achieved. This paper also provides the government with subsidy level conditions under which J-ETS can maximize social welfare for supply chains with varying carbon emission intensities.