Global Supply Chain Network Design Under Cap-and-Trade System and Analysis of Carbon Price and Emission Allowance

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Carbon cap-and-trade has been introduced to reduce greenhouse gas (GHG). Carbon cap-and-trade is expected to incentivize reducing GHG emissions because it enables the receipt of refunds based on the gap between actual GHG emissions and the predetermined allowance. Moreover, GHG emissions, procurement costs and custom duties depend on the country, its economic conditions, the electric energy mix, and Free Trade Agreements (FTAs). To reduce GHG emissions with an affordable cost in a global supply chain, it is important to select suppliers and factory locations considering these factors. Furthermore, since carbon price and GHG emission allowance could be changed, manufacturers should also be paid attention to cost fluctuations due to carbon cap-and-trade. This study develops a mathematical model for a global supply chain with a carbon cap-and-trade system, analyzes GHG emissions and costs under different carbon prices and GHG emission allowances. First, procurement cost and GHG emissions for each part are estimated using the Life Cycle Inventory (LCI) database, and a bill of materials (BOM), listing the estimated cost and GHG emissions for each procured country, is created. Second, a global supply chain with a carbon cap-and-trade is formulated using mathematical programming. Third, numerical experiments are conducted to illustrate a design example. Finally, the results are discussed and analyzed from the viewpoints of reducing costs, GHG emissions, cost-effectiveness, and switching suppliers. It is found cases that the carbon cap-and-trade system can be effective in constructing a global low-carbon supply chain considering customs duties and FTAs and that carbon price has a greater impact on the reduction of GHG emissions instead of GHG emissions allowance in the numerical experiments. Received: 31 December 2023 | Revised: 06 July 2024 | Accepted: 26 August 2024 Conflicts of Interest The authors declare that they have no conflicts of interest to this work. Data Availability Statement Data available on request from the corresponding author upon reasonable request. Author Contribution Statement Miyu Kotegawa: Methodology, Software, Validation, Formal analysis, Investigation, Resources, Data curation, Writing - review editing, Visualization. Yuki Kinoshita: Conceptualization, Methodology, Software, Validation, Formal analysis, Investigation, Resources, Data curation, Writing - review editing, Visualization, Supervision, Project administration. Tetsuo Yamada: Conceptualization, Resources, Supervision, Project administration, Funding acquisition.