Low-carbonization game analysis and optimization in a two-echelon supply chain under the carbon-tax policy

Publication Date06 June 2016
AuthorShihui Yang,Jun Yu
SubjectEconomics,International economics
Low-carbonization game
analysis and optimization in a
two-echelon supply chain
under the carbon-tax policy
Shihui Yang
College of Economics, Jinan University, Guangzhou, China, and
Jun Yu
College of Economics, Jinan University, Guangzhou, China and
Jinhe Center for Economic Research, Xi’an Jiaotong University, Xi’an, China
Purpose The purpose of this study is to help governments make carbon-tax policy and help
enterprises make decisions under that policy.
Design/methodology/approach Based on the carbon-tax policy, with the consideration of
consumers’ low-carbon preferences, this paper compares the pricing, emission reduction and advertising
decisions in three different games (one centralized game and two decentralized Stackelberg games).
Findings This paper concludes that, through centralized game, namely, cooperation game,
manufacturers, retailers and consumers can reach their optimal situation. In the numerical simulation, this
paper analyzes the impact of carbon-tax rate to the decisions of manufacturer and retailer, as well as their
Originality/value – Using the Nash Bargaining Model, the introduction of the bargaining power and
the degree of risk aversion of the parties, this study provides some solution for the distribution of the
additional prot when they cooperate, in which way they can reach their Pareto optimality.
Keywords Retailer, Optimization model, Consumers’ low-carbon preferences,
Low-carbon supply chain, Manufacturer
Paper type Research paper
1. Introduction
President Xi attended the Asia Pacic Economic Cooperation CEO Summit in Manila,
the Philippines, and delivered a keynote speech on November 18, 2015. In this speech, he
mentioned that China will pay more attention to environment-friendly development;
integrate the ecological civilization into all the aspects and the whole process of
economic and social development; commit to achieving sustainable development;
improve the ability to adapt to the climate change comprehensively; stick to the basic
policy of “Resource Conservation and Environmental Protection”; and attain a beautiful
China with blue sky, green land and clean water[1]. From October 26-29, 2015, the Fifth
Plenary Session of the 18th Central Committee of the Communist Party of China was
Project Fund: The National Natural Science Foundation of China (General Program), 2012 (Grant
The current issue and full text archive of this journal is available on Emerald Insight at:
supply chain
Journalof Chinese Economic and
ForeignTrade Studies
Vol.9 No. 2, 2016
©Emerald Group Publishing Limited
DOI 10.1108/JCEFTS-11-2015-0029
held in Beijing. The Plenary Session put forward ve development ideas of “Innovation,
Cooperation, Greenness, Openness and Sharing”[2].
President Xi and President Obama issued the joint announcement on climate change
in Beijing on November 12, 2014. This announcement mentioned that the two countries
have played a critical role in combating global climate change, and pointed out that the
two sides should work constructively for the common good, and listed their own action
for global climate change after year 2020. Among them, China’s plan included two
aspects, one was achieving the peaking of CO
emissions around 2030 and making best
efforts to peak early, the other was increasing the share of non-fossil fuels in primary
energy consumption to around 20 per cent by year 2030[3]. From December 1-14, 2014,
the 20th conference of the parties on the “United Nations Framework Convention on
Climate Change” (UNFCCC) and the 10th conference of the parties on the “Kyoto
Protocol” was held in Lima, the capital of Peru. These conferences talked about the main
topics of the Paris Climate Conference of 2015 (this conference was held from November
30-December 11, 2015, in which the parties have signed the “Paris Agreement”),
determined the related draft text and expected to start the Green Climate Fund as soon
as possible. The main differences between the developed countries and the developing
countries in Lima Climate Conference focused on two aspects, one was the way to
establish the principle of “common but differentiated responsibilities” and the other was
the scope of the contribution with a country’s self-determination; the developed
countries stick to only include emission reduction, but the developing countries hope to
reect in a balanced way concerning of emission reduction, adaption, funds, technology
transfer and capacity-building elements[4]. And China submitted a document on the
contribution with a country’s self-determination for the response of climate change, To
Strengthen the Action Response to Climate Change–the Contribution with Chinas
Self-determination, to the secretariat of the UNFCCC on June 30, 2015. According to this
document, the CO
emissions per gross domestic product of China in 2030 will be
reduced by 60-65 per cent, compared with that in 2005[5]. Above all, the world has an
increasing concern on global climate change.
With the development of the per capita income of China, people’s living level has
increased considerably, and they have become more and more concerned about the
environment. Thus, they will have low-carbon preferences to some extent. As the
present environmental regulation of China is not as strict as the developed countries,
some manufacturers can make products with a private marginal cost lower than the
social marginal cost, which will bring the society with negative externalities. When it
comes to this topic, there are about two ways to solve this problem, one is Pigouvian
Taxes and the other is Coase Theorem. Wei et al. (2013) concluded three mechanisms to
reduce the emissions of greenhouse gas, the rst one is command-and-control
mechanisms, the second one is quantity-based mechanisms and the last one is
price-based mechanisms. Because command-and-control mechanisms always bring
about loss of efciency, most have focused on the second and the third mechanisms.
Pizer (2002) and Nordhaus (2006) drew a conclusion that from an economic point of view,
price-based mechanisms are better than quantity-based mechanisms, and that is why
we choose the carbon-tax policy as an object to study in this paper. Until now, Finland,
Denmark, Sweden, Ireland, Norway, Switzerland, some provinces in Canada and some
states in the USA have already levied carbon-tax[6]. To formulate a suitable carbon-tax
policy, to reduce the carbon emissions of industrial production, and to improve the

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