Impact of carbon pricing policies on the cost and emission of the biomass supply chain: Optimization models and a case study

Abstract

Carbon tax, carbon cap-and-trade, and carbon offset are the main carbon pricing policies in practice. Several studies analyzed the impacts of these policies on optimum solutions of biomass supply chain models. However, due to the focus on specific case studies, insights from these studies may not be general. In this paper, the impact of carbon pricing policies on the optimum solutions of case-independent biomass supply chain models is studied. Several propositions that discuss the impact of carbon pricing policies on optimum cost and emissions of biomass supply chain models are presented and proved mathematically. Next, mathematical models are developed to determine the optimal feedstock mix of a biomass-fed district heating plant. The case study results are used to numerically confirm all propositions. When the carbon price increases, the models prescribe the replacement of natural gas with biomass. Carbon tax and carbon cap-and-trade models result in equal optimum decision variables and emissions for equal carbon prices. The carbon cap-and-trade model has less cost than the carbon tax model if the carbon price is more than the price of initial allowance. Careful allotment of the compliance target is important for the carbon offset model because it bounds the optimum emissions.