Emissions reduction and pricing of supply chain under cap-and-trade and subsidy mechanisms

by Wenqing Miao, Guohua Zhu, Bingliang Shen, Demin Kong

This paper explored how the government provides low-carbon subsidies for the manufacturers, retailers, and consumers in a secondary supply chain under cap-and-trade scheme. We calculated the best prices, emissions reductions, and the demands for common and low-carbon products when subsidizing each of the abovementioned market players. In particular, a comparative analysis of their equilibrium outcomes was made thereafter. The MATLAB simulation found that the optimal emissions reductions under the three subsidy modes were even and positively correlated to low-carbon subsidies, which, however, negatively correlated to the prices of both product types. Higher subsidies drove up demand for low-carbon products and dragged down that for common goods. But the prices of these products maintained the highest levels when consumers were subsidized; demand for common products was greater when subsidies went to retailers than to manufacturers or consumers, consequently generating the largest emissions and highest profits. When the subsidies were greater than 2pcBJ+4pc2K+12kε+4pc2e1J−18e1εJ48pcε, all three subsidy modes saw a drop in total carbon emissions. That being so, the government should offer proper subsidies before seeing energy-saving progress.