Low-carbon innovation with government subsidy for achieving SDGs in a complementary supply chain

Promoting low-carbon innovation (LCI) in firms through government subsidies has emerged as a widely-used policy instrument for achieving sustainable development, directly contributing to the United Nations Sustainable Development Goals (SDGs), including SDG 7 (Affordable and Clean Energy), SDG 9 (Industry, Innovation, and Infrastructure), SDG 12 (Responsible Consumption and Production), and SDG 13 (Climate Action). Considering a complementary supply chain consisting of a supplier and a manufacturer, where the manufacturer assembles components produced in-house and by the supplier into one final product. The government aims to enhance social welfare or LCI product innovation levels. To this end, the government has four potential subsidy strategies: supplier subsidy, manufacturer subsidy, consumer subsidy, and low-carbon infrastructure subsidy. Our research shows that first, although subsidizing low-carbon infrastructure can enhance social welfare, it offers minimal improvement in product LCI. Second, subsidies directed towards suppliers yield limited advancements in social welfare and LCI. Third, when consumers are price-sensitive, subsidizing the manufacturer can maximize both LCI and social welfare. Conversely, when consumers are LCI-sensitive, allocating subsidies toward the supplier is more beneficial. In summary, our research extends the existing literature on complementary supply chain management by identifying the optimal subsidy for the government to achieve its goals, offering tangible insights into practical pathways for realizing SDG 7, 9, 12, and 13 through targeted policy design.