Incentive Mechanisms for Carbon Emission Abatement Considering Consumers’ Low-Carbon Awareness under Cap-and-Trade Regulation

Abstract

In the era of sustainable development, reducing carbon emissions and achieving carbon neutrality are gradually becoming a consensus for our society. This study explores firms’ incentive mechanisms for carbon emission abatement in a two-echelon supply chain under cap-and-trade regulation, where consumers exhibit low-carbon awareness. To boost the manufacturer’s motivation for abatement, the retailer can provide four incentive strategies, i.e., price-only (PO), cost-sharing (CS), revenue-sharing (RS), and both (cost and revenue) sharing (BS). The equilibrium decisions under the four incentive strategies are obtained by establishing and solving game models. A two-part tariff contract is also proposed to coordinate the low-carbon supply chain. Finally, through comparisons and analyses, we find that: (1) Consumers’ high low-carbon awareness can boost the manufacturer’s incentive for carbon emission abatement (CEA), thus increasing supply chain members’ profits. (2) It is more effective for the retailer to share its revenue to incentivize the manufacturer for abatement than to bear the investment cost of CEA. Thus, Strategy RS is better than Strategy CS and equivalent to Strategy BS. (3) The manufacturer and retailer have consistent incentive strategy preference under cap-and-trade regulation. Both firms prefer the incentive strategy with a higher cooperation level. (4) The incentive strategy with a higher cooperation level can also bring higher eco-social welfare under certain conditions.