Coordination mechanisms of closed-loop supply chain under cap-and-trade policy

To solve the problem of excessive carbon emission and protect the environment, the government has put forward cap-and-trade (CAT) policy to limit the greenhouse gas. In order to testify the efficiency of the CAT policy and different coordinating contracts, this paper develops a closed-loop supply chain (CLSC) model consisting of a single manufacturer and retailer under various coordination scenarios. We establish a Stackelberg game model for the manufacturer and the retailer to explore the impact of the CAT policy on pricing, profits and social welfare under different contracts. Our research finds the following conclusions: (1) The CAT policy outperforms the situation with no CAT policy regarding environment, collection quantity and profit; (2) for the profits of manufacturers and CLSC, the profit-sharing contract is optimal, while the retailers may obtain the lowest interest compared with other contracts; (3) the environment benefits and the consumer surplus present contradictory relationships in the contracts. The research objectives are to find out the most appropriate strategies of CAT policy for enterprises in CLSC and improve society’s utility at the same time. These findings provide instructive and practical insights for equilibrium supply chains.