| Abstract: | Carbon tax policy is widely adopted by many countries to curb carbon emissions. In the context of carbon tax policy, firms have more incentive to improve carbon reduction levels by reducing their carbon tax costs. However, firms need to bear carbon reduction costs that may cause shortage of capital. Thus, firms may face problems of financial constraints, which may demotivate firms to produce greener products. To address the decision‐making challenges of firms in the contexts of carbon tax policy and financial constraints, we consider a supply chain with a manufacturer who produces green products and a retailer who sells these products. Our study develops five models to investigate the two firms’ optimal wholesale price, carbon reduction level and ordering quantity, according to the manufacturer and retailer with or without financial constraints. Our goal in this study is to explore how carbon tax policy and banks’ interest rates affect the profits of the two firms, supply chain and consumer surplus. Certain managerial insights are obtained as follows. We demonstrate that carbon tax policy and banks’ interest rates demotivate the manufacturer to produce greener products and demotivate the retailer to order more products. If the interest rate to the manufacturer (retailer) is relatively low, then the manufacturer with financial constraint benefits (harms) the consumers compared with the retailer with financial constraint. Importantly, our analysis suggests that carbon tax policy harms the firms but benefits consumers, and the government in some conditions should reduce unit carbon tax. |
