Optimal supply chain collaborative compliance strategy in integrated carbon market: technology collaborative versus investment collaborative

Purpose This study investigates three supply chain collaborative compliance strategies under the mandatory and voluntary carbon markets: carbon emission reduction technology collaborative (TC), certified emission reduction (CER) investment collaborative (IC) and a hybrid strategy. It examines their effects on supply chain operations and carbon emission reduction decisions to identify the optimal collaborative compliance strategy in integrated carbon market. Design/methodology/approach We consider a supply chain consisting of a non-emission controlling supplier and an emission-controlling manufacturer. The model combines carbon emission allowance cap-and-trade and CER offset mechanism in integrated carbon market. Using game theory modeling, we derive optimal wholesale pricing, production quantity and emission reduction levels. We then compare the performance across non-collaborative, single and hybrid supply chain collaborative compliance strategies. Findings Compared to the non-collaborative strategy, TC enhances manufacturer profit but may not benefit the supplier when collaborative costs are high; IC is less effective for supply chain members when CER prices are low. The supplier’s and manufacturer’s preferences for TC and IC mainly depend on the total investment cost of CER, the CER price and the market-clearing price. The hybrid strategy is preferred by the supplier when CER prices are high or TC costs are low and also preferred by the manufacturer under high CER prices always. Originality/value This study aims to identify the optimal supply chain collaborative compliance strategy. The findings offer support for the production, carbon emission reduction decisions, as well as the design and optimization of the collaborative compliance contracts.