Abstract: As global warming intensifies, firms as main greenhouse gas emitters are responsible for the energy saving and carbon reduction. Given the fact that there exist great differences among firms in terms of the emission abatement efficiency and cost, and great amounts of carbon emissions are generated outside the firm, it is crucial that carbon emissions are allocated according to the emission abatement characteristics of each firm in the supply chain. Considering the positive impacts of firms' emission abatement behaviors on the market demand, how the given emission abatement target is allocated to the members of a bilateral monopoly supply chain composed of a manufacturer and a retailer is investigated in this paper.
Considering three channel power structures:manufacturer Stackelberg, retailer Stackelberg, and Vertical Nash, and two allocation modes:manufacturer allocating and retailer allocating, the profit maximization functions of the manufacturer and retailer in the six decision models are constructed to illustrate the impacts of channel power structures and allocation modes on the carbon emission abatement target allocation decisions and the channel players' as well as the system's profits of the supply chain. The equilibrium solutions in the six models are solved by applying the backward induction method, and managerial insights are obtained from detailed analyses of the results.
Our research shows that in the three channel power structures:(1) the total abatement target can be divided between the manufacturer and retailer, if the firm, who has a strong influence on the market demand, allocates the abatement target, otherwise, the total abatement target will be assigned to the other firm if allocated by the firm with a small influence on the market demand. Moreover, the manufacturer/retailer acting as a leader in the supply chain will be responsible for more carbon emission reductions than as a follower; (2) the demand is the largest when the emission abatement target is allocated by the firm who has a small impact on the demand, which is achieved at the sacrifice of the other firm's undertaking all the carbon abatement cost and does harm to the firm's motivation on carbon reduction initiatives; (3) the maximum system profit and fair allocation of the abatement target can only be achieved when the firm who has a lower emission abatement efficiency and a stronger influence on the demand distributes the abatement target. The results provide firms with some guidance for how to undertake cooperative carbon emission reductions among firms in the supply chain.

Key words: sustainable operations management, carbon emission abatement target allocation, Stackelberg game, backward induction method