Achieving carbon neutrality with smart supply chain management: a CE imperative for the petroleum industry

PurposeWith refineries contributing 68% of CO2 emissions from stationary combustion sources alone, smart technologies and the circular economy (CE) model for resource loop optimization can be a solution for carbon neutrality, especially within petroleum. Thus, this study aims to explore energy conservation by green technology improvement as a CE strategy for resource loop optimization and digital incorporation to maximize reprocessing lead ability rate and carbon-neutral benefits.Design/methodology/approachA game theory approach with Stackelberg equilibrium is considered under government cap-and-trade regulation to stimulate green technology improvement. The refinery acts as a Stackelberg leader and invests in green technology and the retailer as the Stackelberg follower, collects end-of-life lubricants against refund price and offers a two-part-tariff contract to the manufacturer having a significant role in smart technologies.FindingsFirst, green technology improvement is directly influenced by the reprocessing capability and refund price and digital technologies are significant to consider. Second, a two-part-tariff contract coordinates the supply chain for limited reprocessing capability by the retailer. Lastly, the government can effectively manipulate the development of green technology by changing the permit price depending on the intentions.Research limitations/implicationsThe primary limitation is this study has focused on the petroleum sector and data was referenced from the oil refineries of a single country.Practical implicationsOverall, this study provides empirical guidance for policymakers on how to leverage energy-efficient smart technologies for lubricant reprocessing, enabling resource optimization as part of a CE strategy in the petroleum industry and advancing sustainable development goals.Originality/valueThe suggested model responds to the contemporary literature related to CO2 emissions and CE initiatives across the petroleum sector with the extended role of smart technologies and government cap-and-trade regulations.