Utilization of Free Trade Agreements to Minimize Costs and Carbon Emissions in the Global Supply Chain for Sustainable Logistics

Abstract

Background: Since global warming is a crucial worldwide issue, carbon tax has been introduced in the global supply chain as an environmental regulation for the reduction of greenhouse gas (GHG) emissions. Costs, GHG emissions, and carbon tax prices differ in each country due to economic conditions, energy mixes, and government policies. Additionally, multiple countries have signed a Free Trade Agreement (FTA). While FTAs result in their economic benefit, they also increase the risk of carbon leakage, which increases GHG emissions in the global supply chain due to relocation production sites from a country with stricter emission constraints to others with laxer ones. Method: This study proposes a mathematical model for decision support to minimize total costs involving carbon taxes with FTAs. Results: Our model determines suppliers, factory locations, and the number of transported parts and products with costs, FTAs, carbon taxes, and material-based GHG emissions estimated using the Life Cycle Inventory (LCI) database. The FTA utilization on the global low-carbon supply chain is examined by comparing the constructed supply chains with and without FTAs, and by conducting sensitivity analysis of carbon tax prices. Conclusions: We found that FTAs would not cause carbon leakage directly and would be effective for reducing GHG emissions economically.