Energy performance contracting in a supply chain with financially asymmetric manufacturers under carbon tax regulation for climate change mitigation

Energy performance contracting is a turnkey service for an enterprise to achieve the goal of energy saving or emission abatement. This study investigates the value of energy performance contracting in a two-echelon supply chain consisting of one supplier and two financially asymmetric manufacturers under carbon tax regulation for climate change mitigation. The supplier provides a trade credit for a financially weak manufacturer who engages in Cournot competition with a financially strong manufacturer. Furthermore, the supplier can act as an energy service company to offer energy performance contracting for the two manufacturers to achieve carbon tax savings. The impact of sharing ratio of energy performance contracting and coefficient of variable cost are analyzed to explore whether and which manufacturer should be chosen by the supplier to implement energy performance contracting. The results suggest that when the coefficient of variable cost is within a high range, the supplier will not provide energy performance contracting for any manufacturer. However, when the coefficient of variable cost and sharing ratio are not very high, the supplier prefers to provide energy performance contracting for the financially weak manufacturer. With the increasing of sharing ratio, the supplier changes the decision to select the financially strong one. Moreover, the model is extended to consider the impact of demand uncertainty and coefficient of investment cost. Furthermore, the result of numerical studies indicates that there exists a Pareto zone for the three supply chain members to achieve a multi-win situation, if the supplier provides the energy performance contracting for both the manufacturers. (c) 2021 Elsevier Ltd. All rights reserved.

Automated summary

This study examines the value of energy performance contracting in a two-tier supply chain under carbon tax regulation. The supplier offers trade credit to a financially weak manufacturer and can act as an energy service company to provide energy performance contracting for both manufacturers. The impact of sharing ratio and variable cost coefficient are analyzed to determine the best approach for energy performance contracting implementation.