Manufacturers’ performance with industrial symbiosis under cap-and-trade policy considering waste supply-demand mismatch

As a circular economy subfield, industrial symbiosis could relieve resource scarcity and ecological damage. This paper considers an industrial symbiosis chain in which a downstream manufacturer can replace raw materials with waste from an upstream manufacturer for production. We develop a two-stage Stackelberg game to investigate the effects of industrial symbiosis on firm performance under the cap-and-trade policy. We also study the emissions-dependent price scenario, where the price considers the consumer's green preference. Contract design between firms in an industrial symbiosis chain is explored. We obtain the following findings. First, the cap-and-trade policy can encourage manufacturers to make abatement investments when emissions allowances reach certain thresholds. Second, the cap-and-trade policy hinders the upstream manufacturer's emissions reduction due to industrial symbiosis when the waste demand does not exceed supply. Third, industrial symbiosis could improve the downstream manufacturer's abatement level under moderate regulations and increase its emissions reduction amount under stringent regulations. Finally, the two manufacturers can achieve a win-win outcome through industrial symbiosis under the cap-and-trade policy, and a quantity discount contract can achieve Pareto improvement.