Managing Carbon Footprints under the Trade Credit

Abstract

We investigate how the retailer adjusts optimal ordering policy in the presence of cap-and-trade system and trade credit, and the corresponding changes of the retailer’s total costs and carbon footprint. Trade credit is one of the most used short-term financing tools. Our study shows that carbon emissions trading will shorten the ordering cycle for products that emit more carbon dioxide during the storage stage, and therefore reduce the buying behavior stimulation effect of trade credit on these products. Under the cap-and-trade system, the retailer’s total cost may increase or decrease, depending on the combination of carbon cap allocated to the retailer and the carbon price. Moreover, trade credit and the corresponding cost of capital affect the retailer’s carbon emission reduction strategy by changing the retailers’ consolidated cost during the ordering and inventory holding stages.