Pricing and Carbon Reduction Mode for Prefabricated Building Supply Chain with Cap and Trade

Abstract

Global warming caused by excessive emissions of carbon dioxide has seriously threatened the survival and development of mankind. In response to global warming, cap-and-trade policy is adopted by governments in many countries as the most effective carbon emission regulation policy. The paper investigates the pricing and carbon reduction mode of a two echelon supply chain consisting of a supplier and a prefabricated building manufacturer. The prefabricated building manufacturer decides the retail price and unit carbon emissions under cap-and-trade policy. The supplier decides the wholesale price and unit carbon emissions of the materials. They can reduce carbon emissions independently or jointly. We derived the optimal policies of the supplier and the prefabricated building manufacturer in independent carbon reduction mode and joint carbon reduction mode, respectively. We also show that joint carbon reduction mode makes the supplier and the manufacturer input more effort to cut carbon emissions. Finally, we analyze the effect of carbon reduction mode on the optimal decisions and the profit of the supplier, the prefabricated building manufacturer and the supply chain by a numerical study.