Carbon emissions reduction and financial effects of a cap and tax system on an operating supply chain in the cement sector

Abstract

While the cement industry is perceived as one of the major contributors to climate change, with a 7% share of total CO2 emissions, direct taxes on emissions of these gases have been little applied to this productive sector. The present study addresses the issue of assessing the effectiveness of carbon taxation methods in encouraging sustainable cement production processes. In particular, the effect of different carbon emission prices on decisions that lead to a reduction of CO2 emissions in a representative cement supply chain, was studied. A mixed-integer linear formulation is used to describe a non-taxed base case against a case that explicitly includes carbon taxes. Computational experiments conducted on a realistic-sized instance built based on publicly available data from the cement sector, showed that environmental benefits can be attained after implementing a carbon taxation mechanism. The results indicate that with a rate between 15 US$ and 150 US$ by CO2 emitted ton over a predefined cap, will drive cleaner cement production scenarios with a reduction of emissions up to 24%, respect to a non-taxed scenario used as the base line. The proposed decision-making tool can be effectively used by any cement company that needs to better assess the trade-off between its financial objectives and the sustainability goal of carbon emissions reduction.