Who should lead carbon emissions reductions? Upstream vs. downstream firms

In this study, we consider two firms in a supply chain, namely an upstream firm and a downstream firm. The downstream firm sources products from the upstream firm for the further production and makes sales to the final consumers, and each firm strives to reduce carbon emissions. We find that one firm's support on another firm to reduce carbon emissions always benefits all players in the supply chain in terms of firm profit, consumer utility, and carbon emissions reduction, compared with the no supporting case. In addition, we show that the upstream firm's support on the downstream firm creates more benefit than the downstream firm's support on the upstream firm. While higher carbon emissions reduction effort is not a panacea for the environment, the support from the upstream firm tends to be more effective in reducing total carbon emissions