Analyzing the impacts of carbon regulatory mechanisms on supplier and mode selection decisions: An application to a biofuel supply chain

This paper analyzes the impacts of carbon regulatory mechanisms on replenishment decisions in a biofuel supply chain. We employ mathematical models for operations which integrate replenishment and supplier/transportation mode selection decisions. These models explicitly account for carbon emissions that may result from transportation and inventory storage activities. This research is motivated by observations indicating that nearly 19% of the energy consumption and 25% of the energy-related carbon dioxide emissions worldwide arise from transportation. Because freight transportation is expected to continue to grow, we consider the impacts of different carbon regulatory mechanisms on transportation and inventory replenishment decisions in a biofuel supply chain. A set of extensive numerical experiments uses the biofuel supply chain context to analyze the impacts of different regulatory mechanisms, including carbon cap, carbon tax, carbon cap and trade, and carbon offset, on performance. We use existing methodologies to calculate emissions as a function of distance traveled, load weight, and transportation mode used. We also use publicly available data to derive representative biomass transportation costs. As a consequence, our numerical results are meaningful, and give a realistic representation of the relationships between emissions from different transportation modes and the resulting costs. The results of our computational experiments indicate that carbon regulatory mechanisms have a non-trivial impact on replenishment schedules, and as a consequence, costs and emissions in the supply chain.