Resource shuffling in global supply chains under the Clean Competition Act

The US Clean Competition Act (CCA) aims to tackle significant sources of greenhouse gas emissions (GHG) in global supply chains. Under the CCA, the foreign supplier (outside the U.S.) exports carbon-intensive materials (e.g., aluminum) to the home manufacturer (within the U.S.) whose production is imposed an environmental charge on the basis of the level that exceeds the U.S. carbon intensity standard. Given this policy, this study examines the operations in global supply chains where the foreign supplier decides to distribute the same or differentiated materials to the home and foreign manufacturers with the CCA. Differentiated materials can refer to resource shuffling, that is, the foreign supplier exports low-carbon materials to the home market and sends higher-carbon ones to his own country’s market. Our results show that the size difference between the two markets is critical in foreign suppliers’ decisions. Specifically, resource shuffling is preferable for the foreign supplier when the foreign market size is sufficiently small or large, and vice versa. Implementing the CCA can reduce carbon emissions in the U.S. and the global market. It can also achieve an all-win outcome for all supply chain members, consumers, and the environment (i.e., higher profit and consumer surplus, and lower carbon emissions) under resource shuffling when the foreign and home markets follow specific market size structures. Moreover, our study sheds light on the managerial insights into the impacts of the CCA on global supply chains. Specifically, as the implementation time of the CCA continues, in the long run, resource shuffling is more likely to be efficient in carbon emission reduction in the U.S. but less likely to be efficient in carbon emission reduction in the global market. Thus, policymakers should evaluate the efficiency of implementing the CCA yearly and consider adjusting the policy if the efficiency is not satisfied.