Economic Impacts of an Emissions Trading Scheme Pilot in Oligopolistic Agri-Food Supply Chains: A Network Equilibrium Analysis

Tingfeng Wu; Heyin Hou

doi:10.31181/ijes1512026280

Authors

Tingfeng Wu Southeast University- Monash University Joint Graduate School (Suzhou), Southeast University, Suzhou 215000, China Author https://orcid.org/0009-0000-9035-6980
Heyin Hou School of Economics and Management, Southeast University, Nanjing 210000, China Author https://orcid.org/0000-0002-0106-7333

DOI:

https://doi.org/10.31181/ijes1512026280

Keywords:

Emissions Trading Scheme pilots, Network equilibrium, Variational inequality, Oligopolistic supply chains, international agri-food trade, Economic impacts

Abstract

Emissions Trading Scheme (ETS) pilot programs impose binding quota constraints and enable allowance trading, reshaping cost structures and strategic interactions in oligopolistic agri-food supply chains. This paper quantifies the resulting economic impacts, including equilibrium prices, profits, and trade flows, by developing a multi-tier network equilibrium model that links upstream suppliers, downstream manufacturers, domestic and international demand markets, and a carbon trading center under an Emissions Trading Scheme pilot setting. Suppliers invest in low-carbon technologies, while manufacturers undertake labor-efficiency investments that affect unit costs and throughput, with proximity-based spillovers captured via a grid-distance mechanism. The equilibrium conditions are formulated as a variational inequality framework and computed numerically, enabling systematic comparative statics analysis under alternative quota stringency and trading conditions. Using China-EU garlic trade as an illustrative case, the numerical analysis indicates that tighter policy constraints and trading conditions shift production and allowance-trading patterns, with corresponding changes in prices, profits, and emissions across tiers. It also shows that moderate efficiency investment can improve productivity and may reduce aggregate emissions, whereas very high unilateral investment tends to exhibit diminishing returns and can be associated with non-smooth adjustments in network allocations. Finally, coordinated upstream-downstream investment is generally associated with more stable outcomes than isolated initiatives. The framework offers a decision-relevant tool for evaluating Emissions Trading Scheme pilot designs in regulated international agri-food trade networks.

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