The Optimal Order and Production Strategies of Supply Chain with a Stochastic Demand under Carbon Cap-and-Trade Mechanism

In the context of the global low-carbon economy, the carbon cap-and-trade mechanism (CCATM) plays an important impact on the production and trade of enterprises and is widely implemented by most governments to reduce carbon emissions. In this paper, we investigate a two-stage supply chain game model with a stochastic demand under the CCATM, in which the manufacturer has two production modes and the retailer has two order opportunities, and both of them make green effort. The results show that the optimal decision is irrelevant to carbon cap while is relevant to carbon emissions per unit product. The profits of both the manufacturer and the retailer increase under the CCATM. Furthermore, we explore the optimal decisions under the buyback contract and the payment contract provided by the manufacturer to the retailer. We find that the transfer payment can’t improve the profit while the buyback contract can do. We further extend our model by investigating the scenario with the risk-averse channel members, and find that the first optimal order quantity of the retailer would reduce due to risk aversion, while the manufacturer would invest more green effort and the manufacturer would be more likely to cooperate with a lower risk-averse retailer.