Supply Chain Greenhouse Gas Management under Emission Trading

Abstract

To curb global warming man has to reduce greenhouse gas emissions (GHGs) created to the atmosphere by human activities, and it cannot neglect the efforts of corporate communities. Indeed, companiesa direct emissions are dwarfed by supply chain GHGs from an industry sector. No matter to prepare for future environmental regulations or to improve competitive advantages, companies are realizing that they have to reduce and mitigate GHGs from the supply chain perspective. Emission trading (also called cap and trade) is one of market-based instruments to reduce GHGs released from industrial areas. The Paris agreement in 2015 has announced that emission trading plays an essential role in forming part of international climate action to achieve national emission reduction targets. Moreover, due to offering flexibility in choosing compliance levers to the targeted firms or industries emission trading is considered by forward-thinking communities as one effective measure to manage supply chain GHGs. With optimization models, literatures have quantified the impacts of emission trading on the supply chain performance by incorporating the emission cost. Their results show that emission trading is cost-effective to reduce supply chain GHGs. However, rare work addresses how emission trading could be employed in the context of supply chain and what problems would the implementation processes encounter from business and political perspectives. To fill in this research gap, this paper presents one conceptual study as well as one case study. Firstly, it proposes the concept a supply chain emission tradinga to describe the application of emission trading in the context of supply chain and provides three programs to realize the application: supply chain permit trading program, supply chain credit trading program, and supply chain offset trading program. Secondly, this paper conducts one case study so as to quantify and compare the cost-effectiveness of each program. At last, this paper discusses the challenges and opportunities related to implementing each program, and it demonstrates supply chain knowledge management concerning GHGs reduction under emission trading. The results of this paper indicate that supply chain permit trading program is the most cost-effective one among the three to reduce the same amount of supply chain GHGs. Supply chain credit and offset programs are including additionally the cost of administration for emission reduction projects. All three programs allow the transfers of emission reduction units within the supply chain. Supply chain permit trading program emphasizes the supply chain collaboration in meeting the supply chain GHGs reduction target while the other two programs assign the focal company in the supply chain to be responsible for the supply chain GHGs. Implementing supply chain permit trading program is challenged by including the Scope 3 emissions of the focal company into emission trading scheme (ETS) and requires one cost/benefit allocation method among supply chain partners. The other two programs are comparatively easier to be implemented since they can directly employ the experiences of ETS and credit projects. This paper is believed to be one leading edge in proposing one conceptual initiative connecting supply chain GHGs management to the emission trading policy, and in addressing supply chain GHGs management with emission trading from both quantitative and qualitative aspects. It provides insights for both business managers and policy-makers that are concerned with reducing supply chain GHGs.