Optimal carbon reduction in supply chain under the hybrid carbon quota and carbon tax policy

Abstract

This study investigates carbon reduction decision-making in a capital-constrained supply chain under a hybrid policy that combines carbon quota and carbon tax mechanisms. A Stackelberg game decision-making mechanism with the manufacturer as the leader is clarified to derive the optimal carbon reduction rate, wholesale price, and order quantity under the sole carbon quota policy, the sole carbon tax policy, and the hybrid carbon quota and carbon tax policy. The model further examines the influence of policy variables, such as carbon quota and carbon tax, along with consumers' low-carbon preference and carbon reduction cost coefficient on optimal decisions. Numerical simulations reveal that the hybrid policy leads to a higher carbon reduction rate than using either carbon quota or carbon tax alone. The reduction rate increases with a higher quota, tax, and consumers' low-carbon preference, but decreases with rising reduction costs. The hybrid policy achieves similar wholesale prices and order quantities with the carbon quota policy while significantly outperforming the carbon tax policy by achieving lower pricing and demand levels. Although the hybrid approach slightly reduces revenue compared to the quota-only policy, it generates substantially higher returns than the tax-only approach. These findings highlight the hybrid policy's ability to balance environmental effectiveness and economic performance. The study offers practical guidance for policymakers seeking to enhance supply chain sustainability through more integrated carbon regulation strategies.