LOGISTICS NETWORK OPTIMISATION UNDER CARBON EMISSION CONTROL FOR THE PAPER RECYCLING INDUSTRY

LOGISTICS NETWORK OPTIMISATION UNDER CARBON EMISSION CONTROL FOR THE PAPER RECYCLING INDUSTRY Don L, Zurna Hanaf and Paul Drake Unversty of Lverpool Manaement Scool, Catam Street, L69 7ZH, Lverpool UK Emal:donl@lverpool.ac.uk Abstract Waste produced from ndustral actvtes and ouseolds enerates snfcant mpact on envronment. Te lostcs and recycln networks to re-process waste products to reduce polluton and recover values ave been encouraed and wdely mplemented n ndustres. Consequently, reverse or waste lostcs as a key busness process dealn wt dsposed products play a more snfcant role n supply cans today. Wle te waste lostcs and recycln actvtes elps to reduce neatve mpact on envronment, tey also enerate carbon emsson and oter pollutons. Ts study terefore focuses on development of optmal stratees for waste reprocessn (ncludn recycln, remanufacturn and reclamaton) n reverse lostcs networks under varous carbon emsson control polces wt a case of paper recycln ndustry n te UK. Keywords: Eco-lostcs, carbon emsson control polcy, optmsaton. Introducton Reverse lostcs actvtes n relaton to recycln paper products nvolves collecton, sortn, reprocessn and redstrbuton processes. Wle te recycln busness elps to reduce waste and ts mpact on envronment, te actvtes wll stll enerate carbon emsson. To mnmze te carbon emsson wle mantann te operatons effcency of te reverse lostcs operatons s a reat callene. To control carbon emsson, polces ave been set up at dfferent levels from lobal areement, naton-wde polces to local councls reulatons. It s expected tat dfferent polces and trade prces wll ave dfferent mpact on busness decsons made n te reverse lostcs networks. Amon te waste products, paper recycln s crucal n te UK due to lack of resources. Paper s a boderadable product. Dsposal of used paper by landfll wll create a consderable amount of reenouse as, metane, wc contrbutes to clmate cane. Furtermore, paper s also a carbonbased product, resultn to a reat amount of carbon emsson f t s ncnerated (CPI, 2009). Terefore, effcent paper recycln s crucal to reduce te neatve envronment mpact and ncrease reuse of te materals. Ts wll furter reduce tmber consumpton n paper producton. Suc callenes ave not been ven suffcent attentons n bot researc and practce, manly due to te premature carbon emsson control polces n dfferent ndustral sectors. Wt ts callene, operatonal decsons on routn of recycln te dsposed paper need assessment not only on costs, but also on envronment mpacts. Te busness stratees for waste paper recycln (e.. local reprocessn or export scrap paper and mport recycled/new paper) also need to be consdered n terms of envronment mpacts and costs at a natonal level. Te maor questons to be answered for ts researc wll nclude: wat would be te best polcy opton to control carbon emsson and encourae sustanable recycln stratees, and wt a ven carbon control polcy wat would be te best recycln process? Ts researc wll nvestate tese ssues, partcularly te mpacts of te carbon emsson polces on reverse lostcs stratees and operatons. An optmsaton model for te used paper reverse lostcs network assessment s proposed wt a case n te UK. Te researc outcome provdes a useful tool for paper recycln busness desnn recycln networks ncorporatn wt te envronmental perspectve and for overnments to set up approprate polces of carbon emsson control. Lteratures Revew Reverse lostcs s a type of busness processes tat nvolve plannn, manan, and controlln te flow of wastes for eter reuse or fnal dsposal of wastes (Hu et al., 2002). Te reverse lostcs from te envronmental perspectve supports practces n relaton to varous levels of product and materals reuse (Meade and Sarks, 2002). Te reprocessed products may ten be brout back nto te market to te normal supply can network and redstrbuted to customers. 1

Numerous researces on lostcs operatons manaement and optmsaton ave been reported n te lterature. Janc (2007) developed a model for calculatn te full costs of an ntermodal and road fret transport network wt combnaton of nternal and external costs. Km and Van Wee (2009) developed a model to compare ntermodal fret system and truck-only fret system. Te researc concluded tat reardless any type of locomotve, te ral-based ntermodal fret system emt less carbon tan truck-only systems. Wt EU, natonal and local carbon emsson control polces, te dfferent caracterstcs of te cost structure and carbon emsson n dfferent lostcs processes wll lead to dfferent responses of te busness performance to te control polces appled to te busness. Varous envronment polces ave been developed aanst clmate cane. Kyoto Protocol s an nternatonal areement on envronment adopted n 1997. It requres te ndustralzed countres to reduce te emsson of reen ouse ases at an averae of 5% aanst 1990 level over fve-year perod (UNFCCC, 1998). Cap-and-Trade s a common sceme for carbon emsson tradn were a fxed number of annual allowances s allocated to te partcpants as a cap. Partcpants wo face abatement costs need to buy addtonal allowances, wle partcpants wo face low abatement costs can take abatement acton and sell ter surplus allowances for a proft (Sorrell and Sm, 2003). A total resource access lmt (te cap) s defned and ten allocated amon users (Tetenber, 2003). Te trade eter free or wt restrctons, s based on te prce of carbon emsson permt at te trade market (Lutter and Soren, 2002). Carbon tax s anoter type of polcy tools mposed on te emtted carbon beyond te lmt. Tax rate s based on dfferent fossl fuels and accordn to ter carbon content (Pearson and Smt, 1991). Accordn to Herber and Raa (1995) carbon tax calculaton s based on specfc tax, ncludn prmary and fnal carbon tax for fossl fuels and for end users n enery producton respectvely. Carbon prce and tax rate are ly dependent on overnment polces. Te polces wll terefore snfcantly affect cost structure and busness performance of reverse lostcs as transportaton and manufacturn nvolve lare amount of enery consumpton. It s expected tat dfferent carbon control polces and prces wll ave dfferent mpacts on busness decsons made n te reverse lostcs network manaement. Researc n ts polcy mpact on stratec plannn of te reverse lostcs s rarely found n te lterature, and s crtcal to buld sustanable recycln ndustry. Model Descrpton Reverse lostcs actvtes manly nclude collecton, sortn, reprocessn and redstrbuton. To optmally desn a reverse lostcs network, prmary factors nvolved n te decson makn would be locatons of processn (or recovery wt wc dsposed products are remanufactured to rean te product value) and sortn centres, collecton and dstrbuton routes and transportaton modes (Muta and Pokarel, 2008). In ts paper, te researc wll manly focus on mpacts of carbon emsson control polces on te desn of reverse lostcs network and te performance n relaton to bot envronment and operatonal effcency. For ts purpose, a network optmsaton model s bult n ts researc to evaluate te lostcs performance under varous scenaros n relaton to stratec arranements of a reverse lostcs network n te waste paper recycln context n te UK. As a stratec analyss, te network desn wll not elaborate te detaled cost components n operatons, suc as fxed costs, dfferences of processn costs and andln costs between dfferent centres, etc. Instead, te researc wll focus on mpacts of dfferent carbon emsson polces and recycln stratees (e.. selectn dfferent local and overseas recovern centres) on envronment (carbon emsson) and operatonal performance, wt te dversty n delvery dstance and transport modes and routes, etc. Te nvestaton wll partcularly look at ow selecton of carbon emsson polces may sape te recycln stratees and network confuratons dfferently. Fure 1 llustrates te problem scope tat ts researc s focused on (wtn te dotted area n te fure). Te optmsaton model s developed trou commonly used mxed nteer prorammn (MIP).Te obectve functon tarets to mnmum total costs wc nvolve two parts: te so called envronmental costs and lostcs operatonal costs. Te envronmental costs nclude tax, penalty and carbon credt purcase n relaton to carbon emsson from te recycln actvtes. Te operatonal costs nclude producton costs, and transportaton costs. Some recycln costs, suc as collecton and sortn costs are not ncluded n te model, as te costs wll not contrbute to or dfferentate te decson process and results - tey are ncurred anyway, no matter wat recycln stratey (.e. select local or overseas recovery centres) s adopted and wc transportaton modes and routes are selected. Costs 2

assocated wt busness opportuntes (e.. sppn optons lead to muc loner lead-tme for customers comparn wt ral fret) are also nored n te modelln. Customers Materal Recycln Facltes UK Paper Mlls Fnsed product Factores Dstrbuton Centres Export Overseas Paper Mlls Import Fure 1: Reverse lostcs network for paper recycln n te UK Bnary varables are used n te model to select transportaton modes, routes and locatons of paper mlls wc recover te scrap paper. Te most commonly used tax and Cap and Trade carbon emsson control polces are used to nvestate mpacts of te envronmental ncentves on busness performance, and smulate busness reactons to polcy canes. In ts researc, t s assumed tat, under specfed carbon emsson lmt of te carbon emsson tradn sceme, tere s no cost ben ncurred. Te busnesses wll only pay wen ter overall carbon emsson exceeds te lmt. On te oter and, carbon emsson tax as to be pad for all carbon emsson n te busness. Te constrants of te model nclude demands, processn capacty and carbon emsson lmt. Te optmsaton model s descrbed as follown: Obectve functon: Total cost = Local transport cost + Local producton cost + Purcase cost for mported remanufactured materals + Transport cost for mport Sales revenue from export + Carbon emsson cost for mport transport + Carbon emsson cost at local factores (Mlls) + Carbon emsson cost of local transport from materal recycln facltes (MRF) to local factory + Carbon emsson surcare or credt purcase f over te total lmt for local factores + Carbon emsson surcare or credt purcase wt overseas buyers f over lmt of te overseas factores ( TC,, PUR PP SV SP YT,, PC ( CPL L YF ) X PUR TC ),,, YT, ( CPO O ) (1) Subect to: n m s FUE O ( TUE,, YT,, FUE ) X PUR TUE, YT, L,, CLL SV O CLO (3) (2) 3

n m s X, n m s X, s PUR DRP, (4) n, SV TSP (5) m X,, Z (6) X,, 0 ; TY,, Є {0, 1} ; FY Є {0, 1}; = 1,,n; = 1,,m; = 1, 2,, s (7) Notatons : mlls ndex : MRF ndex : Transportaton mode or route ndex. = Paper product manufacturer ndex w : Number of paper product manufacturers n : Number of paper mlls m : Number of transportaton modes = MRF ndex s : Number of MRF Z : Capacty of paper mlls X : Quantty spped from mlls to MRF usn transportaton mode SV : Materals sold to overseas buyers from te mll. YF = 1 f mll s employed, 0 oterwse YT = 1 f transportaton mode from mll to MRF s open, 0 oterwse PC : Unt producton cost of mll TC =: Unt transportaton cost from mlls to MRF usn transportaton mode TUE : Unt carbon emsson from mlls to MRF usn transportaton mode FUE : Unt carbon emsson from mll FUE O : Unt carbon emsson n an overseas country CLO : Carbon emsson permt n an overseas country CLL: Local carbon emsson permt DRP : Demand for recovered raw paper TSP: Total supply of scrap paper PUR : Imported recovered paper Z : Capacty of mll CP O : Overseas carbon prce per unt/ carbon emsson surcare CP L : Local carbon emsson prce per unt/ carbon emsson surcare Oδ + : Carbon emsson excess for an overseas country Lδ + : Local carbon emsson excess Assumptons n ts model:. Te demand for recovered paper n ts model s about 50% of te overall paper demand n te UK, wc s 14 mllon tonnes (WRAP, 2007)... v. Te carbon lmt s also 50% of estmated carbon lmt n UK for paper ndustry wt te ratonal of assumpton 1. Present nvestatons commonly draw conclusons by te assumpton tat te developn countres suc as Cna, Inda ave no carbon emsson lmt. In ts researc, te carbon lmt for Cna s assumed to be same as UK carbon lmt. Te transportaton cost and carbon emsson cost for export transportaton s at seller s expense. Te amount of carbon emsson over te ven lmt can be eter cared by penalty (carbon emsson tax) or covered by purcasn credt from te market at te current prce by te Capand-Trade sceme (Kaeson, 2001). Te optmsaton analyss wt te MIP model s performed wt te Excel Solver tool. Data n te paper recycln sector n te UK as been collected from case studes and te lterature. Te analyss s focused on smulatn mpacts of te carbon emsson control polces on decsons for scrap paper recycln and recovern locatons, and transportaton routes n reverse lostcs network desn. Te data about paper recycln n te UK suc as demand, total paper consumpton, paper prce, and types of paper are obtaned from wte paper publsed by WRAP (2007 and 2010). Te paper mlls, locaton and capacty for eac paper mll are obtaned from onlne company nformaton. Tere are many paper mlls n te UK, and some core reonal paper mlls are cosen n te study based on locaton trouout te Unted Kndom, wc covers Nortern Ireland, Scotland, Wales, Nort Enland, Mdlands and Sout Enland. Total capacty for te cosen paper mlls amounted to alf of te capacty mentoned by WRAP (2010). 4

Analyss Results Tere are fve scenaros nvestated n te analyss. Te analyss focuses on te relatonsp between overall performance (te total cost of te network actvtes) and local recycln capablty (capacty of recycln mlls n te UK). Te frst scenaro analyses te senstvty of te performancecapacty relatonsp to demand canes for recycled paper. Te second scenaro looks at te senstvty of te performance-capacty relatonsp to α wc s te rato of unt carbon emsson cost versus unt local operatons cost. Wle te trd and fourt scenaros examne te senstvtes to canes n carbon prce wtout and wt consdern of overseas carbon permt. Te local capacty s estmated at 2,696,000 tonnes. Te model s run for dfferent local capacty rann from 0.5 to 13 mllon tonnes. Te mpact of demand canes can be seen n f te local capacty s ncreased as well as decreased. Te local capacty s ncreased up to more tan 300% n order to make sure tat te pattern aceve saturated stuaton. Scenaro 1: performance wt local recycln capacty canes Te paper demand s estmated 7,000,000 tonnes n te UK (WRAP, 2007). Ts performance s evaluated wt dfferent local capactes from 500,000 tonnes to 12,000,000 tonnes. 1,000,000,000.00 900,000,000.00 800,000,000.00 700,000,000.00 600,000,000.00 500,000,000.00 400,000,000.00 300,000,000.00 200,000,000.00 100,000,000.00 - Total Cost Fure 2: Total cost and local capacty relatonsp wt te dfferent demand Generally, pattern sowed four staes. Te frst stae s local capacty ben less tan 3,000,000 tonnes. Ts s te stae were te total recycln cost s as te allocaton of reprocessn obs to te MRFs s not cost effectve or not optmal, n terms of te transportaton n te local network and te lare amount of scrap paper ben exported, due to lmted local processn capacty. Te second stae s wt local capacty between 3,000,000 tonnes and 8,000,000 tonnes. At ts stae, as te overall reprocessn capacty allows optmally allocatn te waste paper to te mlls, te cost stays at a lower level. Furter ncrease of capacty only sltly affects te overall performance as te ncrease of local recycln cost s compensated by te reduced transportaton cost for export. Stae tree sows dramatc decrease n overall costs due to reduced mport and export. Te fnal stae sows tat te cost remans uncaned at te lowest cost wt ncreased capacty as all demand as been fulflled by local mlls. Scenaro 2: performance senstvty to supply and demand canes In ts scenaro, paper supply s 3,777,000 tonnes and demand s 7,000,000 tonnes. Te scenaro sows performance varatons wt te canes of paper supply and demand. Fure 3 descrbe te senstvty of te performance-local capacty relatonsp to supply and demand varatons. 5

Fure 3: Total cost and local capacty relatonsp wt te dfferent supply and demand It s notced tat te ncrease n demand and supply wll ncrease te total cost, and vce versa. Terefore te est cost s wen bot demand and supply are ncreased by 10% and te lowest cost s wen tey are decreased by 10%. Wt 2.6 to 5 mllon tonnes of local capacty, te total cost declned rapdly as local capacty as not been fully utlsed, and a part of waste paper s exported. Scenaro 3: Performance senstvty to te cane of Alpa (α) An ndcator α s ntroduced as te rato of unt carbon emsson cost over unt local operaton cost. Te analyss s to nvestate te senstvty of te performance to relatve canes of carbon emsson cost aanst local re-processn cost. Fure 4: Total cost and local capacty relatonsp wt te dfferent α Fure 4 sows tat te relatve carbon emsson cost canes do not snfcantly affect te overall performance except te stae wen te local capacty as been ncreased to meet most of te demand. At tat stae, bot export and mport as been reduced. Te analyss sows tat an optmal rato of unt carbon emsson cost and unt recycln cost may be found wt a lare, but least recycln capacty,.e. 600 mllon wt a capacty of 8 mllon tons at α+10% n ts case. Scenaro 4: Performance senstvty to carbon emsson tradn prce Te carbon prce used n ts case s 13.79. Te prce was obtaned by daly montorn te carbon prce n PontCarbon webste startn from September 2009 untl June 2010. Te demand s 7 mllon tonnes and te supply s 3.7 mllon tonnes. Te scenaro s nvestated by 10% varatons of te 6

carbon prce. Te demand and supply remans te same. Carbon lmt s only for local reverse lostcs operatons, and tere s not carbon lmt for overseas ben consdered. Te analyss s aan conducted wt dfferent local recycln capactes. Fure 5: Total cost and local capacty relatonsp wt te dfferent carbon prce wt only local carbon permt Te canes on prce do not ve muc dfference n total cost. However, wt 2 to 4 mllon tonnes of local capacty (wle most of te demand can be met by te capacty and te export and mport are reduced), te performance s dfferent wt carbon emsson tradn prce canes. Scenaro 5: Performance senstvty to carbon emsson tradn prce wt overseas carbon lmt Ts scenaro nvestates te same context as Scenaro 4, but te carbon lmt for overseas market s consdered to analyse te mpact of ntroducton of overseas (partcularly n developn countres) carbon lmt nto te lostcs plannn. Fure 6: Total cost and local capacty relatonsp wt te dfferent carbon prce wt overseas carbon permt Smlar to Scenaro 4, tere s not muc dfference n overall performance wt dfferent tradn prces. However, wt te capacty of 2.6 to 3.6 mllon tonnes (wle te capacty could meet most of te demand), te cost s sltly er wen te prce s ncreased by 10%. It can be notced tat te ntroducton of overseas carbon permt n countres tat te waste paper to be exported could ncrease 7

overall costs and affect decsons on local recycln capacty and export of te waste paper. However, te tradn prce does not sow snfcant mpact on te overall performance. Conclusons Ts paper attempts to nvestate te mpact of te carbon emsson polces on reverse lostcs stratees and operatons and propose optmsaton model for te recycln paper reverse lostcs network wt a case n te UK. Optmsaton model s used to allocate te waste paper to dfferent local paper mlls and overseas market. Wat-f analyss s done by lookn at waste paper demand, paper supply, te rato of unt carbon emsson cost over unt local operaton cost, and te carbon prce canes for tradn sceme. Te researc outcome sows tat, ven te assumptons made, te local processn can stll emt less carbon tan export of te waste paper. Ts paper contrbutes to bot polcy perspectve and eco-lostcs manaement approac of recycln paper lostcs. It also provdes a enerc vew of stratec manaement of oter recycln materals and lostcs network confuraton ssues wt te carbon emsson control consderatons. Te researc s valuable to overnment polcy makn for carbon emsson control. References CPI, Confederaton of Paper Industres (2009) How to recycle, Fact Seet. Avalable at ttp://www.paper.or.uk/nformaton/factseets/ow_to_recycle.pdf on 19 Oct 2009. Herber, B.P. & Raa, J. T. (1995) An nternatonal carbon tax to combat lobal warmn: An economc and poltcal analyss of te European Unon proposal, Te Amercan Journal of Economcs and Socoloy, vol. 54, pp. 257-267. Hu, T. L., Seu, J. B. & Huan, K. H. (2002) A reverse lostcs cost mnmsaton model for te treatment of azardous wastes, Transportaton Researc Part E, vol. 38, pp. 457-473. Janc, M. (2007). Modelln te full costs of an ntermodal and road fret transport network, Transportaton Researc Part D, vol. 12, pp. 33-44. Km, N.S. & Van Wee, B. (2009) Assessment of CO2 emssons for truck-only and ral-based ntermodal fret systems n Europe, Transportaton Plannn and Tecnoloy, vol. 32, pp. 312-333. Lutter, R. & Soren, J.F. (2002) Tradable permt tarffs: ow local ar polluton affects carbon emssons permt tradn, Land Economcs, vol. 78, no. 2, pp. 159 170. Meade, L. & Sarks, J. (2002) A conceptual model for selectn and evaluatn trd-party reverse lostcs provders, Supply Can Manaement: An Internatonal Journal, vol. 7, no. 5, pp 283-295. Muta, A. & Pokarel, S. (2008) Stratec network desn for reverse lostcs and remanufacturn usn new and old product modules, Computer and Industral Enneern, do:10.1016/.ce.2008.06.006. Pearson, M. & Smt, S. (1991) Te European Carbon Tax: An Assessment of te European Commsson's Proposals, London: Te Insttute of Fscal Studes. Sorrell, S.R. & Sm, J. (2003) Carbon tradn n te polcy mx, Oxford Revew of Economc Polcy, vol. 19, no. 3, pp. 420-437. Tetenber, T. (2003) Te tradable-permts approac to protectn te commons: Lessons for clmate cane, Oxford Revew of Economc Polcy, vol. 19, no. 3, pp. 400-419. UNFCCC (1998) Kyoto Protocol to te Unted Natons framework conventon on clmate cane, Unted Natons. WRAP (2007) Realsn te value of recovered paper, Market Stuaton Report. 8