Supply Chain Optimization And Coordination Incentive Mechanisms Under Carbon Cap And Trade Mechanism

Carbon cap and trade mechanism is an effective measure to regulate carbonemissions by market means. This mechanism has been paid great attention around theworld and it is regarded as one of the most effective market mechanism. EU emissionstrading system (EU ETS) is one of the most influential carbon emissions trading marketin the world.This paper mainly has three parts focusing on supply chain operations optimizationand coordination under carbon cap and trade mechanism.Firstly，based on a two-level supply chain that consists of a single vendor and asingle buyer, a joint economic lot sizing (JELS) model under carbon cap and trademechanism is given, and the optimal decisions are derived. Compared with the classicJELS model, the effectiveness of carbon cap and trade mechanism is demonstrated, andthe impacts of carbon cap and trade, carbon price and carbon cap on supply chaindecisions, carbon emissions, and total cost are examined analytically and numerically.Some managerial insights of supply chain management under carbon cap and trademechanism are provided from analytical and numerical results.Secondly, the coordination problem of the decentralized two-echelon supply chainunder carbon cap and trade mechanism is studied. The effectiveness of the use of carboncap and carbon price to coordinate internal members under different circumstances isanalyzed and demonstrated. In the case of the buyer and supplier cannot participate in thecarbon trading market, adopting carbon cap cannot be an effective coordinationmechanism and the use of setting an internal carbon price can effectively coordinate thesupply chain to reach the overall optimal. And when the buyer and supplier canparticipate in the carbon trading market alone, carbon cap cannot be directly used tomotivate internal members but making subsidy contract can effectively coordinate thesupply chain members to take joint decisions and the effective subsidy contract and therevenue are formulated. Finally, a generalized model of supply chain under carbon cap and trade mechanismis built, and the problem how to design an effective mechanism to coordinate internalmembers of the decentralized supply chain system to achieve the overall optimum underthe circumstance whether the manager of supply chain can impose carbon emissionsquotas to internal members is studied. For the first case, the conclusion “break the carbonbudget balance is a necessary condition to achieve optimal” of carbon quotas assignmentis obtained. The necessary and sufficient condition of supply chain to get optimal isderived and a simple linear carbon quota allocation mechanism to ensure the supplychain to achieve the overall optimal is obtained; For the second case, the conclusion thatthe manager can develop effective subsidy contract to coordinate the supply chainmembers only according to the amount of carbon emissions.