Designing global supply chain network under carbon border adjustment mechanism for low-carbon economy

Greenhouse gas (GHG) emissions should be reduced through supply chains to achieve carbon neutrality. In the forward supply chain, from virgin material production to distribution, material-based GHG emissions account for a considerable amount of the total GHG emissions. Material-based GHG emissions depend on the procurement countries because of the mixed use of energy sources. Therefore, GHG emissions in the supply chain can be reduced economically by reconstructing its network. Moreover, many countries have introduced carbon taxes with different prices. The European Union (EU) is one of the strictest carbon policy regions and introduces a new carbon policy, namely, the carbon border-adjustment mechanism (CBAM). The CBAM imposes additional costs on imported goods from countries with laxer carbon policies to ensure fair prices on the GHG emissions for countries both inside and outside the EU. This study modeled a global supply chain network with tax and free trade agreements under the CBAM using integer programming. The material-based GHG emissions for each part were estimated based on the life cycle inventory database. The proposed model was formulated as an optimization model for minimizing GHG emissions and total cost. Numerical experiments were conducted to validate the proposed model. The results were analyzed in terms of the GHG emissions and costs to discuss the appropriate production placement, carbon tax and CBAM rates. The results of the numerical experiments demonstrated that the CBAM avoided carbon leakages but led to increasing total cost in a global supply chain compared to that without the CBAM. The CBAM also caused factory relocations and reduced the total GHG emissions in most cases.