Carbon pricing versus emissions trading: A supply chain planning perspective

Atefe Zakeri, Farzad Dehghanian, Behnam Fahimnia*, Joseph Sarkis

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

155 Citations (Scopus)

Abstract

Carbon pricing (taxes) and carbon emissions trading are two globally practiced carbon regulatory policy schemes. This paper presents an analytical supply chain planning model that can be used to examine the supply chain performance at the tactical/operational planning level under these two policy schemes. Model implementation and analyses are completed using actual data from a company operating in Australia, where these environmental regulatory policies are practiced. Numerical results provide important managerial and practical implications and policy insights. In particular, the results show that there are inflection points where both carbon pricing and trading schemes could influence costs or emissions reductions. An erratic nonlinear emissions reduction trend is observed in a carbon pricing scheme as the carbon price increases steadily; whereas emissions reduction in a carbon trading scheme follows a relatively linear trend with a nonlinear cost increase. Overall, a carbon trading mechanism, although imperfect, appears to result in better supply chain performance in terms of emissions generation, cost, and service level; even though a carbon tax may be more worthwhile from an uncertainty perspective as emissions trading costs depend on numerous uncertain market conditions.

Original languageEnglish
Peer-reviewed scientific journalInternational Journal of Production Economics
Volume164
Issue numberJune
Pages (from-to)197-205
Number of pages9
ISSN0925-5273
DOIs
Publication statusPublished - 01.06.2015
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Supply chain planning
  • Carbon pricing
  • Carbon tax
  • Carbon trading
  • Cap-and-trade
  • Case study

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