Double Counting in Supply Chain Carbon Footprinting

Authors:
Felipe Caro;Charles J. Corbett;Tarkan Tan;Rob Zuidwijk
Affiliations:
Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095;Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095;School of Industrial Engineering, Eindhoven University of Technology, 5600 MB Eindhoven, The Netherlands;Rotterdam School of Management, Erasmus University, 3000 DR Rotterdam, The Netherlands
Venue:
Manufacturing & Service Operations Management
Year:
2013

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Abstract

Carbon footprinting is a tool for firms to determine the total greenhouse gas GHG emissions associated with their supply chain or with a unit of final product or service. Carbon footprinting typically aims to identify where best to invest in emission reduction efforts, and/or to determine the proportion of total emissions that an individual firm is accountable for, whether financially and/or operationally. A major and underrecognized challenge in determining the appropriate allocation stems from the high degree to which GHG emissions are the result of joint efforts by multiple firms. We introduce a simple but general model of joint production of GHG emissions in general supply chains, decomposing the total footprint into processes, each of which can be influenced by any combination of firms. We analyze two main scenarios. In the first scenario, the social planner allocates emissions to individual firms and imposes a cost on them such as a carbon tax in proportion to the emissions allocated. In the second scenario, a carbon leader voluntarily agrees to offset all emissions in the entire supply chain and then contracts with individual firms to recoup part of the costs of those offsets. In both cases, we find that, to induce the optimal effort levels, the emissions need to be overallocated, even if the carbon tax is the true social cost of carbon. This is in contrast to the usual focus in the life-cycle assessment LCA and carbon footprinting literatures on avoiding double counting. Our work aims to lay the foundation for a framework to integrate the economics-and LCA-based perspectives on supply chain carbon footprinting.