A green vehicle routing methodology for assessing optimal fleet mix and cost/emissions tradeoffs given environmental policy incentives

Transportation accounts for nearly one quarter of global greenhouse gas (GHG) emissions. A significant proportion of transportation emissions can be attributed to supply chain transport, which also represents the fastest-growing sector of emissions. As a way of addressing this challenge in the effort to combat global climate change, many local and national governments have leveraged public policy in the form of carbon taxes, emissions trading systems (ETSs), and subsidies for heavy goods electric vehicles (HGEVs). Firms affected by these policies are thus faced with higher costs for more emissions-intensive supply networks and a lower barrier to entry towards adopting HGEVs. However, the exact policy conditions under which firms would be most motivated to change their behaviors remains unclear. In this paper, we develop a novel methodology to address this obstacle in the form of a bi-objective green vehicle routing problem. The first objective is the minimization of the total cost of transportation over a set of vertices comprised of a depot, customers, and charging stations; the second objective is the minimization of total GHGs emitted during transportation. The proposed approach considers the three policy instruments and their effects on both fleet mix decisions (i.e., the conditions under which a firm is most motivated to adopt HGEVs) and cost- and GHG-minimizing routing options. Via an analysis of the change of the Pareto frontier given increasingly stringent carbon pricing and/or increasingly generous HGEV subsidies, firms may consider routing options that yield the most significant GHG emissions reduction at the lowest cost. To this end, we provide a survey of current and forecasted global trends related to carbon tax rates, ETS carbon allowance prices, and HGEV subsidy amounts.Author summary: When firms design their supply chain transportation networks, they generally do so with the primary objective of minimizing the total transportation cost. Consequently, they reasonably maximize the profitability and long-term viability of their firm. However, this is often paired with the social cost of higher GHG emissions and thus a greater contribution to global warming. In an effort to reduce the social cost of these GHG emissions, government policymakers utilize various tools to increase the monetary cost of more emissions-intensive behaviors and remove barriers to “emissions-friendly” behaviors. With reference to road freight transportation, the most commonly implemented policies to encourage “greener” supply chains are carbon taxes, ETSs, and subsidies for HGEVs. Our research presents a methodology by which policymakers can assess the extent to which their manifold of policies in this area are likely to incentivize behavioral change amongst the firms they regulate. Conversely, this same methodology can be used by regulated firms to analyze how to respond to current or potential future policy conditions, and how they might decrease their emissions from road transport at the lowest possible cost.