Supply Chain Modelling Under Carbon Trading

Supply Chain Modelling Under Carbon Trading

Nidhi M. B. (National Institute of Technology Calicut, India) and V. Madhusudanan Pillai (National Institute of Technology Calicut, India)
DOI: 10.4018/978-1-5225-5424-0.ch016

Abstract

In the recent decades, carbon footprint assessment of an activity has been emerging as a major research area. The carbon trading called “CAP and TRADE system” is evolved out of the Kyoto Protocol and emission trading schemes and is experimented across countries to encourage organizations to control emission. The region or country fixes the CAP which is the limit for emissions emitted by an organization. This chapter depicts the performance evaluation of a supply chain under the carbon cap and trade scheme. A mathematical model is proposed which considers carbon emissions as a result of supply chain operation, carbon trading among members of the supply chain, and carbon trading with members of outside supply chain. A mixed integer linear programming (MILP) model is proposed for the performance evaluation of a forward supply chain having 4 stages. The analysis shows that carbon trading allows economic benefits as well as environmental benefits.
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Background

Achieving improved productivity, better resource utilization, etc. are the major objectives in supply chain operations. Whether the carbon assessment and trading will have a long term effect to reduce carbon emissions was still a question even while trying to focus on the SC operations. Zsidisin and Siferd (2001) suggested that an organization to be environmentally conscious, the SC must focus on the design, acquisition, production, distribution, use, reuse, and disposal of the firm’s goods and services. Organizations opt for carbon assessment either by force or volunteering. The choice of transportation for low carbon emission is modelled by Hoen et al. (2014). The net emission based on fossil fuel, from extraction to consumption across the supply chain is modelled and discussed by Davis et al. (2009). Elhedhli and Merrick (2012) through their model indicate that considerations of carbon emission will have substantial influence on the design of supply chain network configuration. Impact of emission and trading, on the network design of supply chain, is discussed by Daibat and Levi (2010) and Chaabane et al. (2012). Blecker and Kersten (2006) argue that at least one of the collaborating organizations will be adversely affected while bringing cost effectiveness through collaboration and cost shifting in a supply chain. Benjaafar et al. (2013) highlight the risk of emission trading implementation and cost sharing in supply chains. Li et al. (2016) assess the supply chain risk in collaborative trading and say that cost distribution will be a challenge among the organizations partnering in the supply chain. But the effect of carbon trading incorporating trading outside and inside members of the supply chain is missing in the literatures. Also the chapter exemplifies the scenarios such as with and without carbon trading to bring out the effect of trading in a forward supply chain.

Key Terms in this Chapter

Kyoto Protocol: International treaty linked to the United Nations Framework Convention on Climate Change, which acts through the participating parties to set emission reduction targets.

IPCC: Intergovernmental panel on climate change.

Supply Chain Management: Supply chain management (SCM), the management of the flow of goods and resources like information and money across the stages of supply chain under consideration.

Carbon Trading: It is a tool/mechanism used by EU to slow down climate change. It means the process of buying and selling and the credit allowed to emit carbon dioxide while engaged in an activity.

Forward Supply Chain: Stages of supply chain from suppliers, manufacturers, distributors, and customers form the forward chain.

Carbon Emission: The release of carbon in to the atmosphere as a result of activities/operations in a supply chain or business or by an individual.

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