۱- Introduction

۲- The evolutionary game model

۳- System dynamics model for an evolutionary game

۴- Conclusions and limitations

References

Abstract

Governments and consumers are paying more attention to environmental protection. China, Korea, and several European countries have implemented market-based cap-and-trade systems to reduce carbon emissions. At the same time, consumers are willing to pay more for low-carbon products. The decisions of manufacturers and retailers may be impacted by these factors. This paper considers a scenario with a model economy under the effects of a cap-and-trade policy, with consumers who prefer low-carbon products, and develops an evolutionary game (EG) model to examine the evolution of behaviors for powerful retailers (such as Amazon, Gome, Walmart, etc.) and manufacturers in a retailer-led supply chain. In such a supply chain, the retailers can choose whether or not to promote low-carbon products and manufacturers can choose whether or not to reduce carbon emissions. A Stackelberg game structure is used to identify the optimal decisions for manufacturers and retailers. A model is developed to investigate the stability of the equilibrium solutions of the evolutionary game. System dynamics is used to simulate and analyze dynamic and transient behaviors, and is used to simulate the evolutionary game in a Chinese appliance industry. The simulation results show that the emissions cap, the market price of carbon credits, and the consumers’ preferences for low-carbon products are key factors influencing the retailers’ and manufacturers’ behavior. To increase long-term profits for both retailers and manufacturers, the retailers and the manufacturers should make sustainable decisions in tandem.

Introduction

With the rapid development of industrial capabilities in China and other parts of the world, more greenhouse gasses (GHGs) have been emitted due to industrial production processes, which damage the environment. After implementing the Kyoto Protocol in 1997 and the Paris Climate Agreement in 2015, Europe, China, and Korea have attempted to enact a variety of policies and legislation to reduce carbon emissions (Goulder and Schen, 2013; Zhang and Xu, 2013). For example, in China, the National Development and Reform Commission (NDRC) instructed Beijing, Shanghai, Guangdong, and four other cities to implement a carbon emissions trading mechanism. According to NDRC statistics, between the implementation of the program and September 2017, 197 million tons and more than 4.5 billion RMB of carbon credits were exchanged in these seven cities. Under this cap-and-trade system, the government allocates a free limit on carbon emissions to an individual enterprise. If an enterprise produces a larger amount of carbon emissions than the emissions cap, it has to buy credits for the extra carbon emissions; otherwise, it can earn additional revenue by selling the unused carbon credits at the market price (Benjaafar et al., 2013). For example, in 2013, Foxconn invested less than 50 million RMB in energy-saving retrofits but gained 10 million RMB in profit (an increase of 60 million RMB in revenue) by selling the surplus carbon credits; this set of transactions accounted for nearly 30% of the annual surplus credits in Shenzhen. Therefore, the carbon trading market has created a new cost mechanism (Alhaj et al., 2016) for enterprises and could influence the enterprises’ production planning and ordering strategies (Cheng et al., 2017; Drake et al., 2010).