Optimizing Organic Waste to Energy Operations

Baris Ata (), Deishin Lee () and Mustafa H. Tongarlak ()
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Baris Ata: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Deishin Lee: Harvard Business School, Harvard University, Boston, Massachusetts 02163
Mustafa H. Tongarlak: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208

Manufacturing & Service Operations Management, 2012, vol. 14, issue 2, 231-244

Abstract: A waste-to-energy firm that recycles organic waste with energy recovery performs two environmentally beneficial functions: it diverts waste from landfills and it produces renewable energy. At the same time, the waste-to-energy firm serves and collects revenue from two types of customers: waste generators who pay for waste disposal service and electricity consumers who buy energy. Given the process characteristics of the waste-to-energy operation, the market characteristics for waste disposal and energy, and the mechanisms regulators use to encourage production of renewable energy, we determine the profit-maximizing operating strategy of the firm. We also show how regulatory mechanisms affect the operating decisions of the waste-to-energy firm. Our analyses suggest that if the social planner's objective is to maximize landfill diversion, offering a subsidy as a per kilowatt-hour for electricity is more cost effective, whereas if the objective is to maximize renewable energy generation, giving a subsidy as a lump sum to offset capital costs is more effective. This has different regulatory implications for urban and rural settings where the environmental objectives may differ.

Keywords: organic waste to energy; sustainability; environment; operating strategy; regulation (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:14:y:2012:i:2:p:231-244

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