Three-echelon closed-loop supply chain network equilibrium under cap-and-trade regulation

Abstract

This paper investigates the impacts of cap-and-trade (CAT) regulation on a three-echelon closed-loop supply chain network (CLSCN) that consists of suppliers, high-emission and low-emission manufacturers, demand markets and carbon trading centers. The presented CLSCN model includes both product trading and carbon trading subnets. Combining variational inequality theory (VI) with complementary theory, we first characterize the optimal conditions for members in each tier first, and then derive that of the entire CLSCN. In addition, we focus on the effects of carbon caps and EOL collection rate target on CLSCN performances with numerical examples. The results reveal that, in some cases, there is a consistency between carbon emission reduction target of the government and the profit target of enterprises. The government should choose reasonable and moderate carbon caps for all the enterprises to balance the CLSCN members’ economic interests, carbon emissions, as well as resources utilization rate. Moreover, the government should not blindly pursue a high collection rate target. The above conclusions can provide practical guidance for governments and enterprises in a CLSCN under CAT regulation.