Linking methodologies to assess climate impacts and circular economy strategies along supply chains

Abstract

This paper introduces a generic hybrid methodology for assessing economic and environmental impacts along interconnected supply chain markets, considering both the material/product level and the market mechanisms that govern resource allocation. The methodology is illustrated by considering a competitive market and benevolent social planner variant of a supply chain equilibrium (SCE) model, applied to the specific case of single-use and reusable plastic bottles in Belgium. The benevolent social planner optimises a societal welfare function that includes all relevant revenues and costs along the plastic bottle supply chains – including external environmental damage costs. These costs comprise climate damage and are incorporated into the SCE model by combining life cycle assessment data with economic data. The main advantage of this model setup is that it better represents policy reality because it allows to study the effectiveness and efficiency of the simultaneous implementation of multiple circular strategies, their interactions, and possible rebound effects. The findings indicate that when all climate costs are internalised simultaneously, the competitive market solution approaches that of the benevolent social planner. Yet, when policymakers have fewer instruments at their disposal in relation to the number of environmental externalities, the welfare impact of competitive market solutions is limited or even negative. Moreover, key circular economy practices such as material intensity reduction and green design are particularly lagging behind compared to their welfare-optimising levels.