Imposing emission trading scheme on supply chain: Separate- and joint implementation

In response to global warming, it is urgent to control and reduce greenhouse gas (GHG) emissions, especially from the supply chain perspective. The most often discussed topic in this domain indicates that emission trading scheme (ETS) could be employed as one of policy instruments for supply chain emissions management. Via mathematical models, scholars have shown that the employment of emission trading is affecting supply chain performances (both environmental and economic) in different levels. However, previous literature focus on the cost-effectiveness analysis only from the mathematical aspect. To provide policy-makers and companies with the theoretical bases on this hot topic, it is significant to discuss how ETS, one of market-based instruments, could be imposed in the context of supply chain from the mechanical point of view. By incorporating ideas from relevant literature, this paper generates two concepts/modes in imposing ETS on supply chain: jointly imposed supply chain emission trading (e.g., jointly imposed SC-ETS) and separately imposed supply chain emission trading (e.g., separately imposed SC-ETS). It illustrates the working principles of both concepts/modes and conducts a sandbox example to analyze the cost-effectiveness of them. Furthermore, this paper discusses the challenges and opportunities of implementing two modes from practical aspects. Results of quantitative analysis and discussion show that for the sake of both policy-makers and supply chain companies, the separately imposed SC-ETS allowing selling permits would be so far the better mode to manage supply chain GHG emissions compared to the jointly imposed SC-ETS.