Energy conservation investment and supply chain structure under cap-and-trade regulation for a green product

This paper studies the manufacturer’s energy conservation investment and its impact on the endogenous supply chain structure under cap-and-trade regulation. We analytically show that the manufacturer prefers to partially integrate a component supplier only when the efficiency of its energy conservation investment is neither too low nor too high, and there is no partial integration when the efficiency of its energy conservation investment is either too low or too high. Additionally, partial integration increases supply chain profit, consumer surplus and social welfare. Moreover, when the energy conservation efficiency is relatively high, the manufacturer emits higher carbon emissions with partial integration than without it. Furthermore, a generalized two-part tariff contract is presented to coordinate the supply chain with the energy conservation investment and the conditions for deriving an all-win outcome are derived. Finally, the present work numerically studies the impacts of the major carbon parameters on the coordination model and yields several managerial insights.