A new biform game-based coordination mechanism for a carbon complementary supply chain under hybrid carbon regulations

Cap-and-trade, Certified Emission Reductions (CERs) and Renewable Energy Consumption Obligation (RECO) are three regulatory instruments used by governments to decarbonize supply chains. Integrating these mechanisms creates a Carbon Complementary Supply Chain (CCSC), in which traditional energy manufacturers (TMs) with high emissions can offset their carbon footprint by trading CERs with renewable energy manufacturers (RMs) who develop the CER projects, and compete with RMs. In the downstream, retailers are incentivized to procure more renewable energy products to avoid RECO penalties. Given that all the CCSC members tend to cooperatively invest in the CER project, this paper proposes a novel biform game-based coordination mechanism combining noncooperative and cooperative games to promote CCSC’s synergy. The findings show that this mechanism can induce CCSC members to cooperate, achieving Pareto improvement in social welfare, economic performance, and individual profits under specific regulatory intensity thresholds compared to the noncooperative scenario. Our findings contribute to the ongoing debate on the role of carbon regulations in enhancing supply chain performance by providing insights into the contractual relationships among supply chain members and the economic forces at play.