Modeling Carbon Border Tax for Material-Based GHG Emission and Costs in Global Supply Chain Network

Abstract

One of the problems in an environmental policy is carbon leakage, which is increasing GreenHouse Gas (GHG) emissions as an adverse effect due to the production shift from countries with strict climate change policies to those with careless ones. In this situation, Carbon Boarder Adjustment (CBA) is considered as a countermeasure for mitigating GHG emission and carbon leakage globally, with European Union (EU) agreeing to introduce the CBA in 2026. CBA is expected to have huge impact upon a global supply chain network. The reasons of it are that total cost and GHG emissions on a global supply chain network have been influenced by the different procurement cost, customs duty and GHG level from each country by the price level, the governmental policy, and the energy mix. However, it is not revealed how much effect CBA has for the cost, and GHG emission on a global supply chain network. Thus, this study models a global supply chain network with CBA as the intersection of environment and economy. First, a global supply chain network with CBA is modeled and formulated for minimizing the total cost using integer programming. Second, a problem example is prepared with bill of materials for the procurement cost and the GHG emission using life cycle assessment. After that, under the market in the U.S., a numerical experiment is conducted to validate the proposed model. Finally, the effect of CBA is discussed.