Optimal Pricing and Carbon Emission Abatement Allocation Decisions in Supply Chains With Option Contract

With the continuous increase of carbon emissions and the deterioration of environment, governments have passed various laws and regulations to force enterprises to take carbon emission abatement measures. As one of the regulations, carbon tax plays an important and positive role in environmental protection. For enterprises, the allocation of carbon emission abatement is a common means to promote emission reduction. In this paper, under the uncertain market demand, the option contract is adopted to study the retailer's optimal retail price and order quantity, as well as the manufacturer's optimal ratio of total carbon emission abatement and production quantity under the carbon tax. In addition, We analyze the optimal decisions and expected profits of supply chain members with respect to the carbon tax, total carbon emission abatement and option prices by analytical and numerical study, and find that (1) when the carbon tax increases, the optimal ratio of total carbon emission abatement and the optimal retail price increase, while the optimal order and production quantity decrease, which is contrary to the situation of the total carbon emission abatement; (2) when the option prices increase, the optimal retail price increases while the ratio of total carbon emission abatement and the optimal order and production quantity decrease; (3) the expected profits of the manufacturer and retailer show the same trend with the increase of carbon tax and total carbon emission abatement, while have the opposite trend with the increase of option prices.