Optimal Joint Production and Emissions Reduction Strategies Considering Consumers’ Environmental Preferences: A Manufacturer’s Perspective

Wen Tong, Jianbang Du, Fu Zhao, Dong Mu and John W. Sutherland
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Wen Tong: School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China
Jianbang Du: Innovative Transportation Research Institute, Texas Southern University, Houston, TX 77004, USA
Fu Zhao: School of Mechanical Engineering, Purdue University, West Lafayette, IN 47907-2088, USA
Dong Mu: School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China
John W. Sutherland: Environmental and Ecological Engineering, Purdue University, West Lafayette, IN 47907-2088, USA

Sustainability, 2019, vol. 11, issue 2, 1-15

Abstract: Carbon cap-and-trade mechanism is a government-mandated, market-based scheme to reduce emissions, which has a significant effect on manufacturers’ operation decisions. Based on the cap-and-trade mechanism, this paper studies the joint production and emission reduction problem of a manufacturer. The manufacturer faces emissions-sensitive demand impacted by consumers’ environmental preferences (CEP). An extended newsvendor model is used to find the optimal production quantity and emissions reduction quantity. We explore the impacts of market price of carbon credits, emission reduction investment coefficient and CEP on the optimal strategies. Numerical examples are provided to illustrate the theoretical results and orthogonal experimental design technique was applied to find robust system parameters. It is concluded that among all parameters, emissions cap has the greater impact on the expected profit, which is followed by than the market price of carbon credits. This means that the government plays a major role in economic development. The total carbon emissions are mainly affected by the carbon trading price and the product’s sale price, which indicates the carbon trading market and product market play a larger role in controlling environmental benefits. Several valuable managerial insights on helping governments and industries understand how market conditions change and make better long-term decisions are further concluded.

Keywords: cap-and-trade; production; carbon emissions reduction; consumers’ environmental preferences; newsvendor model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:2:p:474-:d:198535

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