Incorporating circular economy policies into product supply chains using bilevel optimization -- A case study on coffee packaging

Abstract

Transitioning to a Circular Economy requires policies to drive sustainable practices. This study proposes a bilevel optimization framework to evaluate the combined use of carbon taxes and subsidies in promoting circular supply chains under varying budget levels. A case study of the coffee packaging supply chain with an Extended Producer Responsibility scenario is used to demonstrate this approach. The framework captures the hierarchical interaction between a regional government (upper level), which aims to minimize environmental impacts, and coffee companies (lower level), which seek to minimize costs. Two bilevel optimization problems are formulated based on two environmental objectives: (1) minimization of greenhouse gas (GHG) emissions, and (2) maximization of circularity. The model integrates mixed-integer linear programming (MILP) with life cycle assessment (LCA), techno-economic assessment (TEA) and circularity assessment. Results demonstrate that subsidies effectively drive supply chain shifts toward low-emission and high-circularity configurations, while carbon taxes alone have a more limited impact. Sensitivity analyses highlight the influence of key parameters, such as glass washing distance and loss rates, on policy effectiveness. Overall, the study provides a bilevel optimization framework with quantitative insights to support policy design for sustainable circular supply chains.

Figures (9)

• Figure 1: Bilevel circular supply chain model illustrating the hierarchical interaction between upper- and lower-level decision makers
• Figure 2: Case study representation of a bilevel circular packaging supply chain, highlighting the hierarchical interaction between the government and industry.
• Figure 3: Impact of subsidies on minimizing GHG emissions: Relationship between government budget and (a) types and quantities of packaging end-of-life treatments, and (b) resulting GHG emission levels.
• Figure 4: Impact of subsidies on maximizing circularity: Relationship between government budget and (a) packaging end-of-life treatments types and quantities, and (b) Circularity index levels.
• Figure 5: Impact of carbon tax and subsidies on minimizing GHG emissions: Relationship between government budget and (a) Carbon Tax revenue and subsidies, and (b) Carbon tax rate, highlighting a high carbon tax benchmark in 2025 at 0.1 $/kg-CO$_{2,\mathrm{eq}}$.