Sustainable manufacturing and coordination decisions with emission reduction targets

Abstract

Carbon emissions from industrial processes are reportedly a dominant part of atmospheric pollution that leads to climatic abnormities in recent decades. The manufacturing industry weighs heavily on emissions and thus considerably bears social responsibilities and legal obligations in cutting carbon footprints. Correspondingly, low-carbon manufacturing has become an inevitable trend that facilitates sustainability development under emission constraints. Nevertheless, it is obviously inadequate to achieve low-carbon sustainability by the manufacturing industry alone. Low-carbon processing becomes a critical supply chain issue that entails the efforts of all the insiders. Coordination among these emission-dependent insiders helps them better assign their emission liability for synergistic achievement in sustainability and profitability. Hence, low-carbon coordination has attracted academic concerns in terms of environmental responsibility. Some emission policies have been implemented to reduce emissions, among which the emission trading scheme (ETS) is the most popular throughout the world. Besides the ETS, many other factors significantly affect the low-carbon decision of supply chain insiders, including the manufacturer, such as price sensitivity, green awareness, and market uncertainties. The emission-dependent firms would become more environmentally responsible when more customers are green-inclined, but these firms are reluctant to pay for green investment in a price-oriented market. Market uncertainties refer to the demand uncertainty and price fluctuation, which both contribute to the complications in decision-making. Besides the production and emission strategy, low-carbon efforts and pricing issues are considered in the low-carbon manufacturing and coordination problem. Options have been introduced to relieve the low-carbon pressures and contribute to the long-run success of the ETS. Yet, the literature on options in low-carbon decision-making remains scarce. Moreover, few researchers have considered option contracts to coordinate the sustainable supply chain with Pareto efficiency under emission reduction context. This dissertation bridges these research gaps by considering emission options in low-carbon manufacturing and product option contract in low-carbon coordination. In addition to option contracts, three other contracts are adopted to coordinate the low-carbon supply chain with a flexible ETS, which has recently proposed with little academic attention. Newsvendor models are built with new mathematical methods to analytically solve the low-carbon decision-making problem with complications in its solution process. Lagrange optimization with Karush-Kuhn-Tucker (KKT) conditions is adopted to solve the low-carbon manufacturing with emission options and coordination with three other contracts, while a Lagrange-Stackelberg (LS) method is explored to solve the low-carbon coordination with product options. This LS method overcomes the difficulty in expressing the first-mover’s decisions and simplifies the problem-solving process. All in all, this dissertation explores low-carbon manufacturing with emission options in the first two chapters, considering price sensitivity and green awareness, respectively. Low-carbon coordination is studied in the next two chapters. One study explores the coordination ability of the option contract under the traditional ETS with low-carbon efforts, while the other coordinates the sustainable supply chain with three other contracts under the flexible ETS. The purpose of this dissertation is to investigate the optimal low-carbon decisions for the supply chain insiders to better develop in the stringent emission environment.