Supply chain coordination with emissions reduction incentives

TLDR

The EU‑ETS is a primary legislative tool for reducing emissions, yet most studies examine it from a global or regulatory angle rather than from the perspective of supply‑chain users. This study is the first to apply the EU‑ETS framework to supply‑chain and operations management. A two‑level vendor–buyer supply‑chain model with a coordination mechanism incorporates GHG emissions, exploring various emissions‑trading schemes and their combinations. The model enables managers to jointly minimize inventory‑related and GHG‑emission costs under penalty constraints, as demonstrated by numerical examples.

Abstract

The European Union Emissions Trading System (EU-ETS) is considered one of the main legislative systems that are set up to reduce emissions and protect the environment. Most of the works in the literature approach this system from a legislation and/or global point of view. Little has been done to examine this system from the perspective of the user. This work is believed to be the first to consider the EU-ETS system in a supply chain and operations management context. A two-level (vendor–buyer) supply chain model with a coordination mechanism is presented while accounting for greenhouse gas (GHG) emissions from manufacturing processes. Different emissions trading schemes are considered, and possible combinations between these schemes are presented. The developed model could be found useful by mangers who wish to jointly minimise the inventory-related and GHG emissions costs of their supply chains when penalties for exceeding emissions limits are considered. Numerical examples are presented, and results are discussed.