Achieve a low carbon supply chain through product mix

Purpose
In the era of climate change, industrial organizations are under increasing pressure from consumers and regulators to reduce greenhouse gas emissions. The paper examines the effectiveness of product mix as a strategy to deliver the low carbon supply chain under the cap-and-trade policy.

Design/methodology/approach
We incorporate the cap-and-trade policy into the green product mix decision models by using game-theoretic approach and compare these decisions in a decentralized model and a centralized model respectively. The research explores potential behavioural changes under the cap-and-trade in the context of a two-echelon supply chain.

Findings
Our analysis results show that the channel structure has significant impact on both economic and environmental performances. An integrated supply chain generates more profits. In contrast, a decentralized supply chain has lower carbon emissions. The cap-and-trade policy makes a different impact on the economic and environmental performances of the supply chain. Balancing the trade-offs is critical to ensure the long term sustainability.

Originality/value
The research offers many interesting observations with respect to the effect of product mix strategy on operational decisions and the trade-offs between costs and carbon emissions under the cap-and-trade policy. The insights derived from our analysis do not only help firms to make important operational and strategic decisions to reduce carbon emissions while maintaining their economic competitiveness, but also make meaningful contribution to governments’ policy making for carbon emissions control.