An optimization study of a palm oil-based regional bio-energy supply chain under carbon pricing and trading policies

Biomass residues due to their low bulk density typically require frequent transportation from biomass plantations in rural areas to conversion bio-energy power plants. This issue contrasts with environmental protection strategies, especially when power plants are facing different carbon reduction policies that enforce them to emit less than a given specific carbon amount. Although several researchers have investigated bio-energy supply chains concerning environmental policies, the majority of studies have been devoted to strategic decisions over a single planning period. This paper presents a multi-period bio-energy supply chain under carbon pricing (carbon tax) and carbon trading (cap-and-trade) policies at the tactical planning level. A mixed-integer linear programming model was adopted to optimize the proposed regional oil-palm biomass-to-bio-energy supply chain planning model. The numerical results indicate that when carbon pricing is in place when carbon tax increases linearly, carbon emissions’ reductions have a nonlinear trend, whereas both cost increase and carbon emissions’ reductions have a relatively upward trend in the carbon trading scheme. This paper also presents the sensitivity analysis of the proposed model regarding cost, emissions’ generation and supply chain performance. Finally, the paper recommends several significant practical implications and policy-making insights for managers and policymakers.