Research On The Production Decision Of Multi-product Firms And Supply Chain Coordination Under Low-carbon Policies

Industrialization process has brought a lot of harmful gas, especially carbon emission. Carbon emission has become one of the main factors to the global warming, and has affected the human production activities and daily life. In order to create an environment friendly society, many countries or regions in the world are promoting the low-carbon economy development. At present, these countries mainly use environmental policies to curb carbon emission. For example, European Union establishes European carbon market to reduce carbon emission, and Finland and Netherlands establish carbon tax regulation to curb carbon emission. The two policies have achieved some results in curbing carbon emission. China is the largest countries of carbon emission, and not only faces economic development but also promots the low-carbon society development. However, this is a great conflict. Therefore, the government needs to select the environmental policies as well as the design of the environmental policies related parameters. In reality, many manufacturing firms produce multiple products to meet the market demand. The implementation of the environmental policies will directly affect each product’s production quanitites. Since the manufacturer often sells products through retailer, the environmental policies will indirectly affect the suppy chain coordination. The paper uses the model and methodology to study the influence of the environmental policies on the firms’ production decisions in the supply chain as well as the supply chain coordination. We also explore the government’s environmental policies selection.First of all, from the perspective of supply chain, we consider a Make-To-Order two-stage supply chain consisting of a manufacturer and a retailer. The manufacturer produces two products which are substitute and complementary. The government imposes cap-and-trade regulation where we assume that the buying price of emission credits are larger than the selling price of emission credits. We study the influence of the cap and the carbon trading prices on the manufacturing’s production decisions.Secondly, we select two main environmental policies (cap-and-trade and carbon tax regulations) and explore the manufacturing firm’s production decision. We also build two-stage game of the manufacturer and the government. The manufacturer produces multiple products and is regulated by the two environmental policies. It needs to determine its optimal number of the products and the production quantities of each product. We compare the carbon emission reduction under cap-and-trade and carbon tax regulations, and explore the influence the two regulations on the manufacturer’s profits. Then, in order to maximize the social welfare, the government must determine the paremeter value of the environmental policies and compares the social welfares under the two regulations.Finally, from the perspective of supply chain, we further consider a Make-To-Order supply chain consisting of a manufacturer and a retailer. We explore the abatement level and production decision under cap-and-trade regulation and also study the supply chain coordination. The manufacturer is regulated by cap-and-trade regulation, and it has two ways to obtain emission credits. One is to buy emission credits from carbon trading market, and the other is to use green technology to reduce unit product carbon emission. The manufactuer may take different contracts, such as wholesale price and cost-sharing contracts. We discuss the manufacturer’s production decision and supply chain coordination under the two contracts. Then we combine the current results with the two-part tariff agreement and find Pareto improvement for the firms’profits in the supply chain.The major innovative points are as follows:(1) We discuss the production decision of two substitute or complementary products under cap-and-trade regulation, and study the allocation of emission credits. The existed studies mainly discuss the production decision of a single product. Moreover, we let the buying price of emission credits be larger than selling price of emission credits, and explore the influence of the cap on the manufacturer’s number of products as well as each product’s production.(2) The government faces many environmental policies, and it needs to select an environmental policy to maximize the social welfare. In practice, the manufacturer often produces multiple products to meet the market demand. The previous work mainly considers the production decision of a single product or uses an algorithm to solve the production decision of multiple proudcts. We get the optimal number of proudcts as well as the production decisions. Moreover, we discuss the manufacturer’s carbon trading decisions and the parameters design under cap-and-trade and carbon tax regulations. Second, the existing literature rarely studies cap-and-trade and carbon tax regulations based on social welfare. We study the influence of the environment damage coefficient on the the parameters design under cap-and-trade and carbon tax regulations. Finally, we compare the carbon emission reduction of the two regulations as well as the social welfares.(3) The existing studies mainly consider the operational decisions under cap-and-trade regulation, and few studies consider the manufacturer abatement. With cap-and-trade regulation, the manufactuer can buy emission credits from carbon trading market. However, adopting green technology can save emission credits. We introduce cap-and-trade regulation and the manufacturer abatement into our model and discuss the supply chain coordination with wholesale price and cost-sharing contracts.The practical implication is as follows:firstly, we study the allocation of emission credits on different products and the influence of the emission trading price on the firms’production decision and the profits. So, it can help the firms to make production and emission trading decisions. Secondly, to maximize social welfare, we compare the social welfare under different environmental policies which can help the government to make the selection among these policies. Finally, from the perspective of supply chain coordination, we find traditional contracts can also coordinate the supply chain which cannot coordinate the supply chain before considering cap-and-trade regulation. Morover, considering green technology is Pareto improvement for the firms’profits in the supply chain.