Skip to main content

Advertisement

SpringerLink
Log in

Exploring the impact of different carbon emission cost models on corporate profitability

  • Original Research
  • Published:
Annals of Operations Research Aims and scope Submit manuscript

Abstract

With increasing pressure to cut carbon emissions and develop sustainability plans, companies need carbon credits to offset emissions that cannot be eliminated from their operations, new global carbon exchange to launch in Singapore by 2021 end, the high-quality credit can bridge this gap and play an important role in the overall climate change mitigation strategy. The purpose of this research is to use the production data (including carbon emissions) of paper-making companies in Taiwan to establish a circular economy mathematical programming model and the concept based on the activity cost method (ABC) to explore the impact of different carbon emissions costs (such carbon tax, carbon cap-and-trade, etc.) on the company’s production structure and profitability impact. The research results show that different carbon emission cost models have different effects on the company's optimal product-mix and profitability. The managerial implication is to combine the extensive application of the carbon emission credit mechanism, which can offset the carbon emissions in the production process and have a significant impact on the company's sustainable competitiveness. In addition, this study can also enable decision makers to understand the impact of different carbon emission cost models on the profitability of the company's product mix, which can be used as a reference for production planning decisions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5

Similar content being viewed by others

Abbreviations

Cm :

The unit cost of material m, m = 1,2,3,…s

Mim :

The amount of material m required per unit of product i

YRi:

The production yield of product i

MQm:

The maximum available quantity of material m

WQi:

The amount of industrial water required per unit of product i

Wp:

The unit cost of industrial water

AWQ:

The maximum available quantity of industrial water

LQ0 :

The normal working hours of direct labor

LQ1 :

The total working time under 8 h of normal working hours and 2 h of overtime

LQ2 :

The total working time under 8 h of normal working hours and 4 h of overtime

LC0 :

The direct labor cost for working hours at LQ0

LC1 :

The direct labor cost for working hours at LQ1

LC2 :

The total number of hours required for direct labor

TLH:

The total number of hours required for direct labor

LHi :

The direct labor hours required for unit product i

HRip :

The machine time required to produce a product i in process p, p = 1,2,3,…,r

MCP :

The hourly machine cost of production process p

MHp :

The maximum machine available time of process p

ACj :

The hourly cost of batch-level activity j

QBij :

The quantity per batch of product i in batch-level activity j

NBij :

The batch number of product i in batch-level activity j

TRj :

The time required per batch of batch-level activity j

TAj :

The time available of batch-level activity j

Xi:

The sales of product i, i = 1,2,3,…,n

CEij:

The carbon emissions per unit of product i in process j

TCE:

The total carbon emissions

TCE1 :

The maximum CO2 emissions within the first tax rate range

TCE2 :

The maximum CO2 emissions within the second tax rate range; if the CO2 emissions exceed TCE2, then it will be taxed at the tax rate of the third carbon tax range

ETR1 :

The tax rate for the first carbon tax range

ETR2 :

The tax rate for the second carbon tax range

ETR3 :

The tax rate for the third carbon tax range

Q1 :

The CO2 emissions for the first tax rate range

Q2 :

The CO2 emissions for the second tax rate range

Q3 :

The CO2 emissions for the third tax rate range

CET1 :

The CO2 emissions tax at TCE1

CET2 :

The CO2 emissions tax at TCE2

CET3 :

The CO2 emissions tax at TCE3

ULE:

The Government-restricted emission caps

CRP:

A single price of carbon right

MACRP:

The maximum carbon rights that can be purchased

REP:

The amount of waste paper (including cut edge materials and defective products) recycled for reuse

WRR:

Waste water recycling rate

REW:

Quantity of wastewater recycled for reuse

References

  • Abas, N., Kalair, A. R., Khan, N., Haider, A., Saleem, Z., & Saleem, M. S. (2018). Natural and synthetic refrigerants, global warming: A review. Renewable and Sustainable Energy Reviews, 90, 557–569.

    Article  Google Scholar 

  • Alegoz, M., Kaya, O., & Bayindir, Z. P. (2021). A comparison of pure manufacturing and hybrid manufacturing–remanufacturing systems under carbon tax policy. European Journal of Operational Research. https://doi.org/10.1016/j.ejor.2021.01.018

    Article  Google Scholar 

  • AlMaryani, M. A. H., & Sadik, H. H. (2012). Strategic management accounting techniques in Romanian companies: Some survey evidence. Procedia Economics and Finance, 3, 387–396.

    Article  Google Scholar 

  • Almeida, A., & Cunha, J. (2017). The implementation of an Activity-Based Costing (ABC) system in a manufacturing company. Procedia Manufacturing, 13, 932–939. https://doi.org/10.1016/j.promfg.2017.09.162

    Article  Google Scholar 

  • Ashrafi, O., Yerushalmi, L., & Haghighat, F. (2015). Wastewater treatment in the pulp-and-paper industry: A review of treatment processes and the associated greenhouse gas emission. Journal of Environmental Management, 158, 146–157.

    Article  Google Scholar 

  • Bailey, I. (2002). European environmental taxes and charges: Economic theory and policy practice. Applied Geography, 22(3), 235–251.

    Article  Google Scholar 

  • Balakrishnan, J., & Cheng, C. H. (2000). Discussion: Theory of constraints and linear programming: A re-examination. International Journal of Production Research, 38(6), 1459–1463.

    Article  Google Scholar 

  • Barrett, S. (1994). Self-enforcing international environmental agreements. In Oxford economic papers, (pp. 878–894).

  • Bebbington, J., & Larrinaga-Gonzalez, C. (2008). Carbon trading: Accounting and reporting issues. European Accounting Review, 17(4), 697–717.

    Article  Google Scholar 

  • Bian, J., & Guo, X. (2021). Policy analysis for emission-reduction with green technology investment in manufacturing. Annals of Operations Research. https://doi.org/10.1007/s10479-021-04071-7

    Article  Google Scholar 

  • Bodansky, D. (2016). The Paris climate change agreement: A new hope? American Journal of International Law, 110(2), 288–319.

    Article  Google Scholar 

  • Boons, F. (2002). Greening products: A framework for product chain management. Journal of Cleaner Production, 10(5), 495–505.

    Article  Google Scholar 

  • Chen, L., & He, F. (2017). Efficiency analysis of carbon emission quotas.

  • Cooper, R., & Kaplan, R. S. (1988). How cost accounting distorts product costs. Strategic Finance, 69(10), 20.

  • Cooper, R., & Kaplan, R. S. (1990). Measure costs right: Make the right decision. The CPA Journal, 60(2), 38.

    Google Scholar 

  • Daga, A. (2021, May 20, 2021). New global carbon exchange to launch in Singapore by year-end. Sustainable Business. Reterived from https://www.reuters.com/business/sustainable-business/singapores-dbs-stanchart-team-up-global-carbon-credit-exchange-2021-05-20/.

  • Demeere, N., Stouthuysen, K., & Roodhooft, F. (2009). Time-driven activity-based costing in an outpatient clinic environment: Development, relevance and managerial impact. Health Policy, 92(2–3), 296–304.

    Article  Google Scholar 

  • Du, S., Qian, J., Liu, T., & Hu, L. (2020). Emission allowance allocation mechanism design: A low-carbon operations perspective. Annals of Operations Research, 291(1), 247–280. https://doi.org/10.1007/s10479-018-2922-z

    Article  Google Scholar 

  • Dye, C.-Y., & Yang, C.-T. (2015). Sustainable trade credit and replenishment decisions with credit-linked demand under carbon emission constraints. European Journal of Operational Research, 244(1), 187–200. https://doi.org/10.1016/j.ejor.2015.01.026

    Article  Google Scholar 

  • Ekins, P., & Dresner, S. (2004). Green taxes and charges: Reducing their impact on low-income households. Joseph Rowntree Foundation.

    Google Scholar 

  • Ellerman, A. D., Convery, F. J., & De Perthuis, C. (2010). Pricing carbon: The European Union emissions trading scheme. Cambridge University Press.

    Google Scholar 

  • Fahimnia, B., Sarkis, J., Choudhary, A., & Eshragh, A. (2015). Tactical supply chain planning under a carbon tax policy scheme: A case study. International Journal of Production Economics, 164, 206–215. https://doi.org/10.1016/j.ijpe.2014.12.015

    Article  Google Scholar 

  • Fang, C., & Ma, T. (2021). Technology adoption with carbon emission trading mechanism: Modeling with heterogeneous agents and uncertain carbon price. Annals of Operations Research, 300(2), 577–600. https://doi.org/10.1007/s10479-019-03297-w

    Article  Google Scholar 

  • Fichman, R. G., & Kemerer, C. F. (2002). Activity based costing for component-based software development. Information Technology and Management, 3(1), 137–160.

    Article  Google Scholar 

  • Ghisellini, P., Cialani, C., & Ulgiati, S. (2016). A review on circular economy: The expected transition to a balanced interplay of environmental and economic systems. Journal of Cleaner Production, 114, 11–32.

    Article  Google Scholar 

  • Goldratt, E. M., & Cox, J. (1984). The goal: Excellence in manufacturing. North River Press.

  • Helm, D. (2005). Economic instruments and environmental policy. Economic and Social Review, 36(3), 205–228.

    Google Scholar 

  • Hervert-Escobar, L., & López-Pérez, J. F. (2020). Production planning and scheduling optimization model: A case of study for a glass container company. Annals of Operations Research, 286(1), 529–543. https://doi.org/10.1007/s10479-018-3099-1

    Article  Google Scholar 

  • Hsieh, C.-L., Tsai, W.-H., & Chang, Y.-C. (2020). Green activity-based costing production decision model for recycled paper. Energies, 13(10), 2413.

    Article  Google Scholar 

  • Jaedicke, R. K. (1961). Improving breakeven analysis by linear programming techniques. NAA Bulletin, 42, 5–12.

    Google Scholar 

  • Johansson, J. (2014). Why do forest companies change their CSR strategies? Responses to market demands and public regulation through dual-certification. Journal of Environmental Planning and Management, 57(3), 349–368.

    Article  Google Scholar 

  • Karmegam, N., Vijayan, P., Prakash, M., & Paul, J. A. J. (2019). Vermicomposting of paper industry sludge with cowdung and green manure plants using Eisenia fetida: A viable option for cleaner and enriched vermicompost production. Journal of Cleaner Production, 228, 718–728.

    Article  Google Scholar 

  • Kaufman, N., Obeiter, M., & Krause, E. (2016). Putting a price on carbon: Reducing emissions. Issue Brief World Resources Institute.

  • Kee, R., & Schmidt, C. (2000). A comparative analysis of utilizing activity-based costing and the theory of constraints for making product-mix decisions. International Journal of Production Economics, 63(1), 1–17.

    Article  Google Scholar 

  • Kim, Y.-W., & Ballard, G. (2001). Activity-based costing and its application to lean construction. Paper presented at the Proceedings of the 9th Annual Conference of the International Group for Lean Construction, Singapore.

  • Kugele, A., Jelinek, F., & Gaffal, R. (2005). Aircraft particulate matter estimation through all phases of flight. Eurocontrol Experimenal Centre, Brétigny sur Orge, France.

  • Kunsch, P., & Springael, J. (2008). Simulation with system dynamics and fuzzy reasoning of a tax policy to reduce CO2 emissions in the residential sector. European Journal of Operational Research, 185(3), 1285–1299. https://doi.org/10.1016/j.ejor.2006.05.048

    Article  Google Scholar 

  • Lee, C. F., Lin, S. J., & Lewis, C. (2008). Analysis of the impacts of combining carbon taxation and emission trading on different industry sectors. Energy Policy, 36(2), 722–729.

    Article  Google Scholar 

  • Li, Y., & Ma, C. (2015). Circular economy of a papermaking park in China: A case study. Journal of Cleaner Production, 92, 65–74.

    Article  Google Scholar 

  • Liu, W., Xie, W., & Qiu, P. (2015). The impact of carbon emission cap and carbon trade mechanism on the order decision with stochastic demand. International Journal of Shipping and Transport Logistics, 7(3), 347–376.

    Article  Google Scholar 

  • Metcalf, G. E., & Weisbach, D. (2009). The design of a carbon tax. Harvard Environmental Law Review, 33, 499.

    Google Scholar 

  • Metz, B., Davidson, O., Bosch, P., Dave, R., & Meyer, L. (2007). Climate change 2007: Mitigation of climate change. Cambridge University Press.

    Google Scholar 

  • Moisello, A. M. (2012). Costing for decision making: Activity-based costing vs. theory of constraints. International Journal of Knowledge, Culture & Change in Organizations: Annual Review, 12, 1–13.

    Google Scholar 

  • Molina-Sánchez, E., Leyva-Díaz, J. C., Cortés-García, F. J., & Molina-Moreno, V. (2018). Proposal of sustainability indicators for the waste management from the paper industry within the circular economy model. Water, 10(8), 1014.

    Article  Google Scholar 

  • Ozola, Z. U., Vesere, R., Kalnins, S. N., & Blumberga, D. (2019). Paper waste recycling: Circular economy aspects. Environmental & Climate Technologies, 23(3), 260–273.

    Article  Google Scholar 

  • Pati, R. K., Vrat, P., & Kumar, P. (2006). Economic analysis of paper recycling vis-a-vis wood as raw material. International Journal of Production Economics, 103(2), 489–508.

    Article  Google Scholar 

  • Pember, A., & Lemon, M. (2012). Measuring and managing environmental sustainability: Using activity-based costing/management (ABC/M). The Consortium for Advanced Management–International.

  • Plenert, G. (1993). Optimizing theory of constraints when multiple constrained resources exist. European Journal of Operational Research, 70(1), 126–133.

    Article  Google Scholar 

  • Radovilsky, Z. D. (1998). A quantitative approach to estimate the size of the time buffer in the theory of constraints. International Journal of Production Economics, 55(2), 113–119.

    Article  Google Scholar 

  • Rizzi, P., & Danesi, S. (2021). Policies for the circular economy: The case of paper industry. Symphonya. Emerging Issues in Management, 1, 76–84.

    Google Scholar 

  • Roztocki, N. (2001). Using the integrated activity-based costing and economic value added information system for project management. Paper presented at the Proceedings of the Seventh Americas Conference on Information Systems.

  • Sathre, R., & Gustavsson, L. (2007). Effects of energy and carbon taxes on building material competitiveness. Energy and Buildings, 39(4), 488–494.

    Article  Google Scholar 

  • Schleussner, C. F., Rogelj, J., Schaeffer, M., Lissner, T., Licker, R., Fischer, E. M., Knutti, R., Levermann, A., Frieler, K., & Hare, W. (2016). Science and policy characteristics of the Paris Agreement temperature goal. Nature Climate Change, 6(9), 827–835.

    Article  Google Scholar 

  • Schulze, M., Seuring, S., & Ewering, C. (2012). Applying activity-based costing in a supply chain environment. International Journal of Production Economics, 135(2), 716–725.

    Article  Google Scholar 

  • Solomon, S. (2007). IPCC (2007): Climate change the physical science basis. Paper presented at the Agu fall meeting abstracts.

  • Tsai, W.-H. (1996). Activity-based costing model for joint products. Computers & Industrial Engineering, 31(3–4), 725–729.

    Article  Google Scholar 

  • Tsai, W.-H., Hsu, J.-L., Chen, C.-H., Chou, Y.-W., Lin, S.-J., & Lin, W.-R. (2010). Application of ABC in hot spring country inn. International Journal of Management and Enterprise Development, 8(2), 152–174.

    Article  Google Scholar 

  • Tsai, W.-H., & Jhong, S.-Y. (2018). Carbon emissions cost analysis with activity-based costing. Sustainability, 10(8), 2872.

    Article  Google Scholar 

  • Tsai, W.-H., Lee, K.-C., Liu, J.-Y., Lin, H.-L., Chou, Y.-W., & Lin, S.-J. (2012b). A mixed activity-based costing decision model for green airline fleet planning under the constraints of the European Union Emissions Trading Scheme. Energy, 39(1), 218–226.

    Article  Google Scholar 

  • Tsai, W.-H., Lin, W.-R., Fan, Y.-W., Lee, P.-L., Lin, S.-J., & Hsu, J.-L. (2012a). Applying a mathematical programming approach for a green product mix decision. International Journal of Production Research, 50(4), 1171–1184.

    Article  Google Scholar 

  • Tsai, W.-H., Yang, C.-H., Chang, J.-C., & Lee, H.-L. (2014). An Activity-Based Costing decision model for life cycle assessment in green building projects. European Journal of Operational Research, 238(2), 607–619. https://doi.org/10.1016/j.ejor.2014.03.024

    Article  Google Scholar 

  • Turney, P. B. (2005). Common cents: How to succeed with activity-based costing and activity-based management. McGraw-Hill.

    Google Scholar 

  • Wang, X., Xue, M., & Xing, L. (2018). Analysis of carbon emission reduction in a dual-channel supply chain with cap-and-trade regulation and low-carbon preference. Sustainability, 10(3), 580.

    Article  Google Scholar 

  • Wei, S. (2021). A sequential game analysis on carbon tax policy choices in open economies: From the perspective of carbon emission responsibilities. Journal of Cleaner Production, 283, 124588.

    Article  Google Scholar 

  • Wesumperuma, A., Ginige, A., Ginige, A., & Hol, A. (2013). Green activity based management (ABM) for organisations.

  • Zech, K. M., & Schneider, U. A. (2019). Carbon leakage and limited efficiency of greenhouse gas taxes on food products. Journal of Cleaner Production, 213, 99–103.

    Article  Google Scholar 

  • Zhang, B., & Xu, L. (2013). Multi-item production planning with carbon cap and trade mechanism. International Journal of Production Economics, 144(1), 118–127.

    Article  Google Scholar 

  • Zhang, L., Yang, W., Yuan, Y., & Zhou, R. (2017). An integrated carbon policy-based interactive strategy for carbon reduction and economic development in a construction material supply chain. Sustainability, 9(11), 2107.

    Article  Google Scholar 

  • Zhang, Q., Khan, M. U., Lin, X., Yi, W., & Lei, H. (2020). Green-composites produced from waste residue in pulp and paper industry: A sustainable way to manage industrial wastes. Journal of Cleaner Production, 262, 121251.

    Article  Google Scholar 

  • Zhang, Y.-J., Liang, T., Jin, Y.-L., & Shen, B. (2020). The impact of carbon trading on economic output and carbon emissions reduction in China’s industrial sectors. Applied Energy, 260, 114290.

    Article  Google Scholar 

  • Zheng, C. W., & Abu, M. Y. (2019). Application of activity based costing for palm oil plantation. Journal of Modern Manufacturing Systems and Technology, 2, 1–14.

    Article  Google Scholar 

Download references

Acknowledgements

The authors would like to thank the Ministry of Science and Technology of Taiwan for financial support of this research under Grant No. MOST106-2410-H-008-020-MY3 and MOST109-2410-H-008-029-MY2.

Author information

Authors and Affiliations

  1. Department of Business Administration, National Central University, Jhongli, Taoyuan, 32001, Taiwan

    Wen-Hsien Tsai, Shang-Yu Lai & Chu-Lun Hsieh

Authors
  1. Wen-Hsien Tsai
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Shang-Yu Lai
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Chu-Lun Hsieh
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Chu-Lun Hsieh.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Tsai, WH., Lai, SY. & Hsieh, CL. Exploring the impact of different carbon emission cost models on corporate profitability. Ann Oper Res 322, 41–74 (2023). https://doi.org/10.1007/s10479-022-04519-4

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10479-022-04519-4

Keywords

Search

Navigation