Achieve a low carbon supply chain through product mix
| Pages | 2468-2484 |
| Published date | 04 December 2017 |
| DOI | https://doi.org/10.1108/IMDS-02-2017-0054 |
| Date | 04 December 2017 |
| Author | Xu Chen,Xiaojun Wang |
| Subject Matter | Information & knowledge management,Information systems,Data management systems,Knowledge management,Knowledge sharing,Management science & operations,Supply chain management,Supply chain information systems,Logistics,Quality management/systems |
Achieve a low carbon supply
chain through product mix
Xu Chen
School of Management and Economics,
University of Electronic Science and Technology of China, Chengdu, China, and
Xiaojun Wang
Department of Management, University of Bristol, Bristol, UK
Abstract
Purpose –In the era of climatechange, industrial organizationsare under increasingpressure from consumers
and regulatorsto reduce greenhousegas emissions. The purpose ofthis paper is to examine the effectivenessof
product mix as a strategy to deliver the low carbon supply chain under the cap-and-trade policy.
Design/methodology/approach –The authorsincorporate the cap-and-trade policy intothe green product
mix decisionmodels byusing game-theoreticapproach andcompare these decisionsin a decentralizedmodel and
a centralized model, respectively. The research explores potential behavioral changes under the cap-and-trade in
the context of a two-echelon supply chain.
Findings –The analysis results show that the channel structure has significant impact on both economic
and environmental performances. An integrated supply chain generates more profits. In contrast, a
decentralized supply chain has lower carbon emissions. The cap-and-trade policy makes a different impact on
the economic and environmental performances of the supply chain. Balancing the trade-offs is critical to
ensure the long-term sustainability.
Originality/value –The research offers many interesting observations with respect to the effect of product
mix strategy on operational decisions and the trade-offs between costs and carbon emissions under the
cap-and-tradepolicy. The insights derivedfrom the analysis not only helpfirms to make important operational
and strategicdecisions to reduce carbon emissionswhile maintaining their economiccompetitiveness, but also
make meaningful contribution to governments’policy making for carbonemissions control.
Keywords Cap-and-trade, Carbon management, Low carbon supply chain, Product mix
Paper type Research paper
1. Introduction
Climate change has brought about many problems, such as rising sea level, heat waves,
storm surges, and reduction of human life expectation (Cheryl et al., 2013). The increasing
carbon emissions are regarded as one important human factor that contributes to global
warming. To combat man-made climate change, more than 190 countries reached a final
deal for the most comprehensive international agreement ever to reduce their greenhouse
gas emissions in 2015. According to the United Nation, over 140 countries of 197 Parties
including the top emitters, e.g. China, the USA, and India, have ratified the Paris climate
agreement. Now, it is their responsibility to take immediate actions to reduce global
greenhouse gas emissions (e.g. carbon emission) and transparently report the results. Many
carbon emissions control policies such as mandatory carbon emissions capacity, carbon
emissions tax, cap-and-trade, and investment in the carbon offsets are available to
governments to achieve the national targets set in the agreement (Song and Leng, 2012;
Choi, 2013; Konur and Schaefer 2014; Chen and Hao, 2015). Among them, cap-and-trade is a
policyapproach that attractsmuch attention.The approach firstsets an overall cap,and allows
companies to trade the unused portion of their cap to other companies with high greenhouse
gas emissions. Accompanied by complementary regulatory measures, cap-and-trade is a
sufficient or necessary condition for carbon emission reduction (Hanemann, 2010). In practice,
Industrial Management & Data
Systems
Vol. 117 No. 10, 2017
pp. 2468-2484
© Emerald PublishingLimited
0263-5577
DOI 10.1108/IMDS-02-2017-0054
Received 9 February 2017
Revised 19 April 2017
Accepted 2 May 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0263-5577.htm
The authors are supported by the National Natural Science Foundation of China (Nos 71272128,
71432003, 91646109).
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IMDS
117,10
many countries or regions, like the USA, European Union, and China have used the policy to
reduce carbon emissions. Cap-and-trade policies, such as EuropeanUnion Emissions Trading
Scheme, have been proven to be an important tool to address climate change, and become a
major choice for investors to decentralize their investment risks (Zhu and Wei, 2013).
Managing carbon emissions has become an important area of policy making and research
against the background of increasing political and societal concerns about climate change.
Although, carbon reporting has become a mandatory requirement for companies in many
countries, it is often not enough for individual firms to report and reduce their own carbon
emissions. Because, whatever progress is made “in house,”a large proportion of carbon
emissions typically occur outside the direct control of reporting companies but within the
operations of suppliers in their procurement networks (Bhattacharya et al., 2014;
Kumar et al., 2015; Tidy et al., 2016). Therefore, to achieve the low carbon objective, it is
essential to reduce carbon emissions across the whole supply chain. In the UK, major
supermarketchains such as Tesco and Sainsbury’s set carbon emissionreductions targets for
both store and distribution operationas well as their supply chains. Individual firms have to
respond with innovative and effective strategies in achieving the carbon emission reduction
targets while maintain economic competitiveness (Luo et al., 2016; Uyarra et al., 2016).
One popular strategicresponse from the firms is to produce a mixture of green and standard
products. Green products deliver the environmental benefit as they generate less carbon
emissions but with higher operational costs. In contrast, standard products provide
the economic benefit as they produce higher carbon emissions with lower operational costs.
It is important for firms to balance the tradeoff between the economic and environmental
objectives for the sustainable development (Lee et al., 2012; Fahimnia et al., 2015;
Tseng et al., 2015; Wang, 2015) .
This research focuses on the cap-and-trade policy, and investigates their effects on supply
chain decisions, profits and carbon emissions reduction. In this paper, a two-echelon supply
chain that consists of a supplier and a manufacturer is considered. The manufacturer
purchases materials from the supplierand then produces mixed products to sell to end users
in order to reduce carbon emissions. The manufacturer is imposed by the cap-and-trade
policy. The research questions in this paper are as follows:
RQ1. What are the supplier’s optimal wholesale price, the manufacturer’s optimal retail
prices and production quantities for mixed products in the cases of without and
with cap-and-trade?
RQ2. What effect does channel structure (integrated channel or decentralized channel)
have on the supply chain’s decisions, profits and carbon emissions reduction?
RQ3. What effect does the cap-and-trade policy have on the supply chain’s decisions,
profit and carbon emissions reduction?
In order to answer these questions, we develop carbon efficient supply chain game models
with mixed products under the cap-and-trade policy. This paper contributes to the existing
literature by providing model-based insights on the impact that cap-and-trade policy haveon
supply chain decisions and performances. We incorporate the cap-and-trade policy into the
green product mix decision models by using game-theoretic approach and compare these
decisions in a decentralized model and a centralized model,respectively. We offer interesting
observations with respect to the effect of the cap-and-trade policy on supply chain decisions
and the tradeoff between costs and carbonemissions. The results derived fromthe proposed
models providemany interesting managementinsights and importantpolicy implications that
enable governments and regulators to examine current policies on carbon emission control.
The remainder of this paper is organized as follows. Section 2 surveys related literature
on carbon efficient supply chain management in particular the effort of the cap-and-trade
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supply chain
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