Supply network design with carbon tariffs and location-specific carbon policies

Carbon policies are often limited to certain regions. Consequently, unadjusted regions offer companies a higher degree of flexibility. However, carbon leakage leads to a shift in production locations to regions without carbon policies. To prevent carbon leakage, carbon tariffs are imposed on carbon emissions imported into regulated regions. Against this backdrop, we present a model formulation for multiperiod supply network design subject to carbon tariffs and location-specific carbon policies. Within this model, the locations of manufacturing plants and distribution centers and transport between corresponding locations are planned. The objective is to minimize the net present value. To solve this supply network planning model, we apply a fix-and-optimize heuristic. Our numerical study demonstrates that the heuristic provides high-quality solutions in a reasonable time frame. Furthermore, as companies are exposed to different combinations and characteristics of carbon tariffs and carbon policies at different locations managerial insights are presented