The trade-off between costs and carbon emissions from economic lot-sizing decisions

Abstract

Logistics decisions can have a significant impact on carbon emissions, a driver of global warming. We consider emissions reductions from better utilization of a given fleet of vehicles. We study an Economic Lot-Sizing setting in which a decision-maker determines the amount to be shipped in each period, and in which demand can fluctuate. Our paper assesses the trade-off between costs and carbon emissions. The emission parameters are based on a survey of results from empirical studies and on real-life considerations. In order to model the trade-off, we introduce a bi-objective lot-sizing model to find the Pareto optimal solutions with respect to costs and emissions. Our experiments show that it is often costly to reduce carbon emissions from the cost optimal solution, compared to carbon prices in the market. The cases in which carbon emissions can be reduced most cost-efficiently are those in which carbon emissions are large relative to costs, typically because costs are the results of past investments and can be considered sunk.