Optimal emission reduction strategy for carbon neutral target: cap-and-trade policy and supply chain contracts with uncertain demand under SDG 13-climate action

Motivating manufacturers to reduce carbon emissions is an effective way to achieve sustainable development goals (SDGs). However, the carbon-constrained manufacturers are under pressure to consider market uncertainty, consumer’s green behavior, and supply chain cooperation when optimizing strategies under government regulations. Therefore, we deserve a detailed theoretical examination of cap-and-trade policy with supply chain cooperative contracts, depict uncertain demand by the newsvendor model, and optimize the emission reduction, order quantity, and pricing strategies in three cooperative cases: wholesale price, cost-sharing, and collaborative contract. Moreover, we analyze the effects of carbon regulations on the optimal decisions and profits, then conduct a comparative study on these results under three cooperative contracts. Our findings show that the manufacturer will purchase more emission rights rather than invest in reduction when the government-given carbon quotas decrease. Besides, the cost-sharing contract promotes greener production and higher reduction level compared to the wholesale price contract, but damages the manufacturer’s profit as the cost-sharing ratio and green preference rise. In this case, the government should increase the emission quotas and meanwhile enhance consumer’s green awareness based on a substantial growth of potential market. Furthermore, to improve the positive effect of cost-sharing contract on emission reduction levels, the government should increase carbon quotas when the carbon trading price fluctuates in a relatively higher range.