Energy performance contracting selection and carbon emission decisions under carbon cap‐and‐trade regulation

Reducing carbon emissions has become a critical challenge under cap‐and‐trade regulation. Energy performance contracting (EPC) is a vital mechanism to address this challenge. Meanwhile, cap‐and‐trade regulation reshapes the profit distribution mechanism underlying EPC cooperation among supply chain members. This paper considers a specific supply chain structure. In this structure, a supplier sells products directly to consumers and also supplies raw materials to an SM. The manufacturer cannot produce low‐carbon products due to a lack of low‐carbon technologies. Against this background, this paper examines whether the supplier, acting as an energy service company, should provide EPC to the manufacturer to enable low‐carbon production. The results show that when the substitution rate of ordinary products for low‐carbon products is low, the supplier will adopt EPC only for itself if its direct sales channel cost is low. If the direct sales cost is high, the supplier will provide EPC only for the manufacturer. When both the product substitution rate and the direct sales cost are high, the supplier will offer EPC services to both itself and the manufacturer. Furthermore, this study verifies that EPC adoption can increase the total supply chain profit, improve consumer surplus, and enhance social welfare, thereby achieving Pareto improvement.