Carbon emissions reduction in maritime supply chain under cap-and-trade and carbon tax policies

Abstract

Maritime carbon emissions have evolved into a pressing global environmental challenge. The cap-and-trade and carbon tax are two market-oriented policies adopted by many governments to reduce carbon emissions. However, the existing research on emission reduction policies either focuses on some methods within a single policy category or focuses on comparisons at the macro policy level. There is a lack of in-depth analyses on the implementation details of these two policies, namely, the quota allocation methods in cap-and-trade and the tax rate structures of carbon taxes. Therefore, this study integrates three carbon trading quota allocation methods: grandfathering (G), benchmarking (B), and historical intensity (HI) and two tax rate forms: flat-rate tax (FT) and progressive tax (PT) to establish a game-theoretic framework involving the government, the port company, and the shipping company. This study also analyzes the impacts of these methods on carbon emissions within the maritime supply chain (MSC). The main findings are as follows: (1) Methods G, HI, FT, and PT achieve emission reductions by constraining production quantities, whereas Method B risks emission increases due to output expansion. (2) Method B maximizes profits by scaling production quantities, outperforming Methods G and PT. These three methods (G, B, and PT) exhibit profit growth under carbon price increases, whereas Methods HI and FT experience profit declines as carbon prices rise. (3) Method B maximizes short-term profits but risks higher emissions, and Methods G and PT balance profits and emissions, while Methods HI and FT underperform and should be avoided.