Emission-Dependent Supply Chain And Environment-Policy-Making In The’ Cap-and-Trade’ System

In company with the advance of industrial and the rapid growth of world economy, the demand and consume of energy in the world increase rapidly. Mass exploitation of fossil fuel, causing serious environmental pollution and greenhouse gas emission, which is also the main cause for environmental degradation and global climate change. Carbon dioxide emission has been proven to be one of the main culprits of global warming in recent years. The first international convention aimed at control carbon emission-’the United Nations Framework Convention on Climate Change’ take effect in1994, it is the basic framework for international climate cooperation. As deepen and supplement this convention,’Kyoto Protocol’ entered into force in2005, it is the first legally binding emission reduction document in the history. The protocol is a milestone, it is clear that a flexible framework for reducing emission through regulation and market mechanism to reach emission reduction targets. In the "cap and trade" system, emission have become a resource of the operational elements, which will significantly affect all aspects of operation, and thus become an important point of concern for operational decisions. Corporate self-regulation should be based on emission permits, and take emission factor into account. If the emission permit the corporate need have exceeded the limit, the corporate must purchase additional emission permit through other companies or green organization (such as afforestation organization, environmental group). If there is surplus emission through operational optimization, technological innovation, new energy and other means, the surplus emission also can be sold to winning the extra profits through emission trading system.This paper intends to investigate the effect of emission permit to supply chain production from the micro-level. The emissions-dependent supply chain (including one member circumstance) will be studied in the’cap and trade’system. Game theory analysis the emission-dependent supply chain members in this case. On the other hand, Government will be introduced as the players in this game. T This paper will be modeling and analyzing the emissions-dependent supply chain production operations based on reasonable abstract reality, and provide a reference for the practice operation and mechanism design.Specific contents of this paper can be summarized as follows:In the first chapter, environmental issues was first discussed. Research on the relationship between energy consumption and the global economy. Excessive dependence on fossil energy consumption causes global warming, environmental issues and global climate change. Secondly, we describe the classification of global carbon emission trading market: project-based transaction market, permit-based system and voluntary market trading transaction. Based on this, the significance of emission permit from micro-level is stated combined with research topic and current research status of this article.In the second chapter, we review the related research literature for the supply chain and emissions permit. First, the macro-level of emission permit is reviewed, including the effects of climate change, the contact between macroeconomic and carbon emission, the advantages of emission trading system, emission permit allocation mechanism, the measures of carbon footprint, the establishment of emission trading system, the multilateral cooperation of emission trading. Soon, the traditional supply chain management research is also reviewed, such as the newsboy problem, supply chain contracts and coordination problems. Finally, we made a detailed overview from the micro-level of low-carbon supply chain, such as green supply chain management and green supply chain design, the impact of emission permit on the supply chain, the production of low-carbon supply chain optimization and inventory management. Then, the current research status of low-carbon supply chain are summarized.In the third chapter, related models are studied:newsboy model and emissions-dependent supply chain. Combining the basic assumptions and calculation methods of Newsboy model, we focuses on emission-dependent supply chain, In the ’cap and trade’system, emission permit have become a factor of production. We studied the decision-making of emission-dependent supply chain according to three sources of emission permit. By analyzing relationship between the unit emission permit costs of emissions-dependent manufacturers according to purification emission and unit emission permit costs through emission trading market, the decision-making of emission-dependent manufacturer and emission supply were discussed in this part.In the fourth chapter, the emission-dependent oligopolistic manufacturer will be in-depth studied in ’cap and trade’ system, and government decision-making to optimize the optimal emission quota. Compare with no emission requirement of decision-making for emission-dependent oligopolistic manufacturer, analysis the effect of manufacturer’decision in the’cap and trade’ system. Subsequently, two method to research the emission quota distribution of emission-dependent oligopolistic manufacturer are studied. On the one hand to increase the environmental benefits (increase the unit emission profit in one system) and economic; on the other hand, to reduce emission permit unit product as the objective function, there is should be corresponding cash subsidies by the government to incentive emission-dependent oligopolistic manufacturers to reduce unit product emissions. Government decision-making for a range of emission quota will be confirmed through the discussed the relationship between these parameters. Finally, a data example on emissions-dependent oligopolistic manufacturer will be revealed for the manufacturer’s decision sensitivity analysis.In Chapter five, the emission-dependent supply chain will be discussed in-depth in’cap and trade’system. There is a nested Stackelberg game model in this system, including emission-dependent manufacturer, emission supply and the government department. The manufacturer’s emission quota will be confirmed by the government basing on understanding the social (supply chain system) responses. The decision-making of the emission-dependent manufacturer and emission supply will process a Stackelberg game in a certain emission quota. In this Stackelberg game, the impact of emission quota to the decision-making of emission-dependent manufacturer and emission supply will be discussed. Finally, from the government’s perspective, Bernoulli Nash was used to study determine the optimal emission quota. And, numerical examples in this chapter were discussed. In Chapter Ⅵ, the full summary of this paper and outlook for future research were emerged. Firstly, we summarized major research of this paper, and finally, we point out the future research direction.The main innovation of this paper is as follows:(1) proposed emission-dependent oligopolistic manufacturer model in the ’cap and trade’ system.(2) Creativity analyzed the system model including the emission-dependent manufacturer, emission supply and government department.(3) Design emission quota allocation problem of emission-dependent oligopolistic manufacturer and emission-dependent manufacturer under stochastic demand.