Study on one subsidy model for biofuel supply chain coordination

Biofuel has become a kind of promising energy to substitute fossil fuels for its huge potential on reducing carbon dioxide emission as well as solving energy shortage. However, non-technology problems, especially the supply chain management has become the important bottlenecks. This paper focused on subsidy contract of a three-level biofuel supply chain and formulated a model to maximize the profits of energy base, biofuel producer and fuel sales company. The stackelberg game theory and backward induction is adopted to get the subsidy and biomass production under the perfect information condition. Finally, the Nash equilibrium among the supply chain members is also calculated. The results show that (1) the energy bases would like to provide more biomass when they are encouraged by subsidy; (2) the biomass subsidy is a linear function of biofuel subsidy for biofuel sales companies; (3) the biofuel subsidy should be changed in different situations.