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Timing and eco(nomic) efficiency of climate-friendly investments in supply chains

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  • Lukas, Elmar
  • Welling, Andreas

Abstract

Emission trading schemes such as the European Union Emissions Trading System (EUETS) attempt to reconcile economic efficiency with ecological efficiency by creating financial incentives for companies to invest in climate-friendly innovations. Using real options methodology, we demonstrate that under uncertainty, economic and ecological efficiency continue to be mutually exclusive. This problem is even worse if a climate-friendly project depends on investing in of a whole supply chain. We model a sequential bargaining game in a supply chain where the parties negotiate over implementation of a carbon dioxide (CO2) saving investment project. We show that the outcome of their bargaining is not economically efficient and even less ecologically efficient. Furthermore, we show that a supply chain becomes less economically efficient and less ecologically efficient with every additional chain link. Finally, we make recommendations for how managers or politicians can improve the situation and thereby increase economic as well as ecological efficiency and thus also the eco-efficiency of supply chains.

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  • Lukas, Elmar & Welling, Andreas, 2014. "Timing and eco(nomic) efficiency of climate-friendly investments in supply chains," European Journal of Operational Research, Elsevier, vol. 233(2), pages 448-457.
    • Handle: RePEc:eee:ejores:v:233:y:2014:i:2:p:448-457
    DOI: 10.1016/j.ejor.2013.03.017
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    4. Compernolle, T. & Welkenhuysen, K. & Huisman, K. & Piessens, K. & Kort, P., 2017. "Off-shore enhanced oil recovery in the North Sea: The impact of price uncertainty on the investment decisions," Energy Policy, Elsevier, vol. 101(C), pages 123-137.
    5. Andreas Welling, 2017. "Optimal Carbon Tax Scheme under Uncertainty in an Oligopolistic Market of Polluters," FEMM Working Papers 170001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    6. Yong Tan & Mike G. Tsionas, 2022. "Modelling sustainability efficiency in banking," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3754-3772, July.
    7. Yang, Fuxia & Yang, Mian, 2015. "Analysis on China's eco-innovations: Regulation context, intertemporal change and regional differences," European Journal of Operational Research, Elsevier, vol. 247(3), pages 1003-1012.
    8. Lukas, Elmar & Welling, Andreas, 2017. "Efficient non-cooperative bargaining despite keeping strategic information private," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 287-294.
    9. Bonneuil, N. & Boucekkine, R., 2016. "Optimal transition to renewable energy with threshold of irreversible pollution," European Journal of Operational Research, Elsevier, vol. 248(1), pages 257-262.
    10. Sommarberg, Matti & Mäkinen, Saku J., 2019. "A method for anticipating the disruptive nature of digitalization in the machine-building industry," Technological Forecasting and Social Change, Elsevier, vol. 146(C), pages 808-819.
    11. Andreas Welling, 2017. "Green Finance: Recent developments, characteristics and important actors," FEMM Working Papers 170002, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    12. Banerjee, Shantanu & Güçbilmez, Ufuk & Pawlina, Grzegorz, 2014. "Optimal exercise of jointly held real options: A Nash bargaining approach with value diversion," European Journal of Operational Research, Elsevier, vol. 239(2), pages 565-578.
    13. Qinglong Gou & Liang Liang & Zhimin Huang & Susan X. Li, 2017. "Editor’s Introduction," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 16(04), pages 899-905, July.
    14. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
    15. Tang, Shaolong & Wang, Wenjie & Yan, Hong & Hao, Gang, 2015. "Low carbon logistics: Reducing shipment frequency to cut carbon emissions," International Journal of Production Economics, Elsevier, vol. 164(C), pages 339-350.
    16. He, Yixiong & Zhang, Fengxuan & Wang, Yanwei, 2023. "How to facilitate efficient blue carbon trading? A simulation study using the game theory to find the optimal strategy for each participant," Energy, Elsevier, vol. 276(C).
    17. Qinpeng Wang & Longfei He & Daozhi Zhao & Michele Lundy, 2018. "Diverse Schemes of Cost Pooling for Carbon-Reduction Outsourcing in Low-Carbon Supply Chains," Energies, MDPI, vol. 11(11), pages 1-17, November.

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