Optimal Carbon Tax in Cross-border Supply Chain Network: The Impact of Tariff Policy

The development of global operations and procurement leads to the popularity of cross-border supply chain network (CBSCN). Various economic and sustainability-related factors and policies from different countries further complicate the CBSCN management. This paper addresses the issues of carbon tax (CT) policy and tariff policy in a CBSCN, including original equipment manufacturers (OEMs), local demand markets, and overseas suppliers, to investigate the impact of CT and tariff on the OEMs’ pricing, production, and carbon emissions decisions. First, we analyzed the behavior of OEMs and suppliers with CT and tariff, and then their optimal conditions and equilibrium conditions of markets were given. An equilibrium model with an exogenous local CT rate was developed. Then, when considering the local CT rate as endogenous, we provided the equilibrium conditions of the local CT rate to control carbon emissions and extended the above model to an equilibrium model with an endogenous local CT rate. We find that an increase in the local CT rate leads to the decline of carbon emissions of OEMs and the rise of carbon emissions of suppliers, but the total carbon emissions of the network decrease. Higher tariffs bring a surge in the local CT rate and a reduction in the total carbon emission of the network. Our findings provide managerial insights for supply chain participants to make the optimal operational decisions to improve their profits and policy implications for governments to implement appropriate CT rate and tariffs to encourage firms’ carbon emission abatement.