This research investigates the environmental-friendly sourcing decision of a manufacturer under the carbon cap and trade regulation. The manufacturer can purchase the component from either a non-competing supplier (NS) who has a limited capital for carbon emissions abatement or an abundant competing supplier (CS) who is more willing to cut the carbon emissions, but sells substitutable products in the end consumer market. In addition, we examine under what scenarios the manufacturer should support the NS in reducing carbon emissions.

We develop three models which consider the suppliers' investments in reducing carbon emissions as well as the consumers' environmental awareness: the competition, the integration, and the co-opetition models. The manufacturer purchases the parts from the NS in the first two models, but in the integration model, it cooperates with the NS to reduce carbon emissions. For the co-opetition model, the manufacturer switches to buying the parts from the CS. Through the numerical analysis, we found that whether co-opetition occurs is solely dependent on the manufacturer's decision. The co-opetition model is beneficial to the manufacturer under some conditions, while the CS always gains a greater profit compared with the other models since its carbon emission abatement can generate a higher price and extra revenue from the sales of leftover carbon. Otherwise, the manufacturer switches to the integration model. Furthermore, the carbon abatement level of the CS has no effect on the manufacturer's product quantity and profit in the co-opetition model.

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