Abstract: Based on Stackelberg game between manufacturer and retailer, this paper analyzes how retailer cost sharing on emission reduction affects optimal decisions of manufacturer and retailer emission reduction.The results show that optimum order batch of retailer is positively correlated with volume of carbon emission reductions of manufacturer, and is negatively correlated with wholesale price of product without retailer cost sharing; with retailer cost sharing,the relationship between optimum order batch of retailer and volume of carbon emission reductions of manufacturer depends on the difference between carbon emission sensitivity and retailer cost sharing rate: if carbon emission sensitivity is greater than retailer cost sharing rate, optimum order batch of retailer is positively correlated with volume of carbon emission reductions of manufacturer, otherwise they are negatively correlated. Optimum order batch of retailer is negatively correlated with the price of semi-manufactured goods.

Key words: carbon tax, carbon emission sensitivity, retailer cost sharing, Stackelberg game