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Carbon cap-and-trade schemes in closed-loop supply chains: Why firms do not comply?

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  • Yang, Yuxiang
  • Goodarzi, Shadi
  • Bozorgi, Ali
  • Fahimnia, Behnam

Abstract

In a cap-and-trade scheme, firms with low carbon emissions can trade their excess emission credits with other firms who generate more emissions than their allocated allowance. However, some firms do not fully comply with the imposed carbon policy and even exceed their overall emission capacity, including their dedicated credits as well as the credits purchased in the carbon market. The noncompliance behavior of these firms is often penalised by monetary fines. We are interested in a quantitative study to understand the characteristics of this noncompliance penalty. We present game theoretic models to investigate the network impact of compliance and noncompliance behavior of the players in a closed-loop supply chain operating under a carbon cap-and-trade scheme. The network equilibrium models are utilized to study the interactive behavior of the supply chain players. Extensive numerical analysis is completed to examine the effect of noncompliance penalties, remanufacturing ratios, and production emissions on the equilibrium results. The analysis arrives at important managerial and regulatory insights.

Suggested Citation

  • Yang, Yuxiang & Goodarzi, Shadi & Bozorgi, Ali & Fahimnia, Behnam, 2021. "Carbon cap-and-trade schemes in closed-loop supply chains: Why firms do not comply?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:transe:v:156:y:2021:i:c:s1366554521002489
    DOI: 10.1016/j.tre.2021.102486
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    5. Yan Zhou & Miao Hou & Kar-Hung Wong, 2023. "The Optimal Remanufacturing Strategy of the Closed-Loop Supply Chain Network under Government Regulation and the Manufacturer’s Design for the Environment," Sustainability, MDPI, vol. 15(9), pages 1-34, April.
    6. Yang Lv & Xinhua Bi & Quanxi Li & Haowei Zhang, 2022. "Research on Closed-Loop Supply Chain Decision Making and Recycling Channel Selection under Carbon Allowance and Carbon Trading," Sustainability, MDPI, vol. 14(18), pages 1-17, September.
    7. Chaonan Li & Tianyi Guo & Yan Chen, 2022. "Robust Emission Reduction Strategies under Cap-and-Trade and Demand Uncertainty," Sustainability, MDPI, vol. 14(20), pages 1-27, October.

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