Robust and sustainable supply chains: A case study of the German biofuel sector

• Robuste und nachhaltige Wertschöpfungsnetzwerke: Eine Fallstudie des deutschen Biokraftstoffsektors

Hombach, Laura Elisabeth; Walther, Grit (Thesis advisor); Fröhling, Magnus (Thesis advisor)

Aachen (2017)
Dissertation / PhD Thesis

Dissertation, RWTH Aachen University, 2017

Abstract

The transportation sector consumes 26% of global delivered energy and emits 22% of global CO2 emissions, 75% of them resulting from road transportation. In the future, the usage of fossil fuels must be reduced in order to ensure supply security as well as projected emission savings within the transportation sector. One way of achieving these targets is to substitute fossil fuels by biofuels. Every type of fossil fuel can be substituted by different kinds of biofuels. Today, investors have to decide whether and to what extent biofuels should substitute fossil fuels in the future to find economically feasible/optimal investment strategies. Due to the high investment cost of biofuels, profit-oriented investors have to be supported by political regulation if the goal is to achieve market diffusion of biofuels. Biofuel supply chain planning problems can be classified as strategic planning problems with a long-term planning horizon. Long-term planning horizons often lead to high planning uncertainties. These planning uncertainties may result from uncertain market or political developments. Thus, in order to design long-term stable biofuel supply chains, uncertain development of the market structure and political regulations must be taken into account in the decision support system. A variety of potential investor groups (e.g. fossil fuel industry, automotive industry, or agricultural consortia) may invest in biofuel supply chains. These investors often face varying risk perceptions and different risk attitudes. In gen-eral, the risk attitude of a decision maker can be classified as anything between risk-neutral or risk-averse. Therefore, the positive or negative evaluation of an investment decision depends on the specific risk attitude of the decision maker. Additionally, specific political targets regulating a switch from fossil to biofuels exist. A switch from fossil fuels to biofuels simultaneously affects all three aspects of sustainability (economic, ecological and social). To ensure that the positive effects of substituting fossil fuels by biofuels (e.g. greenhouse gas (GHG) emission savings) are not overtaken by negative impacts of biofuel supply chains (e.g. competition with food production or land use change), political regulations must be established that guarantee the design of sustainable biofuel supply chains. Therefore, the various trade-offs between triple-bottom-line dimensions have to be considered simultaneously to find political regulations that enable sustainable biofuel supply chains. Thus, two actors with conflicting objectives influence the biofuel supply chain planning problem, namely the investor and the politician. Also, an interaction between the politician and investor exists and must be considered.The two planning problems for the investor and politician are modeled against this backdrop. For the investor, a profit-oriented decision support framework considering cultivation of biomass, production of biofuels, import of biofuels and biomass, as well as blending of fuels taking into account uncertainties and different risk attitudes is developed. For the politician, a multi-objective decision support framework taking into account the triple-bottom-line of sustainability as well as uncertainties and different risk attitudes is developed. The aim is to find robust investment decisions as well as sustainable and robust biofuel regulations to obtain information about the behavior of the biofuel sector and the interaction between the investor and the politician. Thus, the goal of this dissertation is to design two decision support frameworks, one for the investor and one for the politician, and to analyze the interaction between these two actors.In conclusion, a decision support framework for the design of robust and sustainable biofuel supply chains including not only all relevant material flows, but also all political instruments used by the European Union was developed. Furthermore, different risk attitudes of the decision maker were integrated and the trade-off between the risk attitude of the decision maker and the performance of the biofuel supply chain was visualized. Finally, approaches from robust optimization and multi-objective optimization were combined to design robust and sustainable biofuel supply chains. Two different case studies were analyzed for the investor, first the regional case study of Rhineland-Palatinate and, second, the national case study for Germany. For these case studies, a detailed data analysis was performed. For the investor it is possible to derive details about the network structures of the optimal biofuel supply chain including used biomass, installed/used production technologies, produced biofuel, and transportation taking into account European biofuel regulations. We found that the optimality of the biofuel supply chain responds sensitively to changes in market data and political regulations. Thus, the framework allows the investor to design robust biofuel supply chains in consideration of his specific risk attitude and to understand the influence of his risk attitude on the performance of the biofuel supply chain. For the politician, one national case study representing Germany was analyzed. It was shown that the existing European biofuel regulations are not efficient with regard to the three sustainability criteria, maximizing the NPV (economic), minimizing GHG emissions (ecological), and minimizing land use change (social). Additionally, the impact of the different political instruments on the investment decision was shown. Thus, the politician can use the framework to analyze legal instruments or political regulations based on their sustainability performance and their impact on the investment decision. Additionally, it was shown that the current political regulations are unable to prevent land use change as required by the European Union and that unintended social side effects such as the installation of overcapacities appear. Also, the framework allows for an evaluation of political regulations regarding their sustainability performance as well as different market uncertainties and different risk attitudes of the investor to ensure that the political regulations lead to robust and sustainable biofuel regulations.

Institutions

• Chair of Operations Management [813510]