Sustainable supply chain coordination with cap and trade regulation

Increasing carbon emissions has led to a global concern. For this reason the concept of sustainable supply chain is considered to optimize the profits with decreasing emissions. Analyzing sustainability with coordination provides better payoff for the supply chain and its member under emission reduction efforts. Herein we model a two level chain under sustainability and uncertain demand where a cap and trade contract is initialized. We compare the partners’ profits and analyze the changes of channel efficiencies with respect to different cap and trade parameters. The results of numerical study with uniform demand uncertainty show that, in decentralized system, retailers earn more profit than manufacturers. In addition, retailers want to have wholesale price contract with manufacturers but manufacturers want to increase wholesale prices to maximize their profit.