Assessing the impact of payments for environmental services on a bioeconomic supply chain equilibrium

Abstract

This study evaluates the effectiveness of Payments for Environmental Services (PES) in mitigating both climate change and biodiversity loss within bioeconomic supply chains. Employing a variational inequality approach within a multicriteria decision-making framework, complemented by numerical simulations using an optimized machine learning algorithm, we find that reductions of approximately 50 per cent in greenhouse gas emissions and biodiversity loss are attainable. However, PES alone are insufficient to achieve these targets. A comprehensive strategy—combining a moderate reduction in production through economic decoupling, increased environmental awareness, and targeted incentives—is necessary for meaningful reductions. Our findings also indicate that supply chain participants collectively forgo 11.36 per cent of their profits when internalizing environmental externalities. Meanwhile, consumers are willing to pay only a 4.04 per cent premium for sustainable products, implying that a significant portion of these costs cannot simply be transferred to consumers. Consequently, firms must invest in greener production methods and abatement technologies to sustain profit margins while mitigating environmental impacts.