Analysis of the Single-Period Problem under Carbon Emissions Policies

Jingpu Song () and Mingming Leng ()
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Jingpu Song: Shanghai Institute of Foreign Trade
Mingming Leng: Lingnan University

Chapter Chapter 13 in Handbook of Newsvendor Problems, 2012, pp 297-313 from Springer

Abstract: Abstract We investigate the classical single-period (newsvendor) problem under carbon emissions policies including the mandatory carbon emissions capacity, the carbon emissions tax, and the cap-and-trade system. Specifically, under each policy, we find a firm’s optimal production quantity and corresponding expected profit, and draw analytic managerial insights. We show that, in order to reduce carbon emissions by a certain percentage, the tax rate imposed on the high-margin firm should be less than that on the low-margin firm for the high-profit perishable products, whereas the high-margin firm should absorb a high tax than the low-margin firm for the low-profit products. Under the cap-and-trade policy, the emissions capacity should be set to a level such that the marginal profit of the firm is less than the carbon credit purchasing price. We also derive the specific (closed-form) conditions under which, as a result of implementing the cap-and-trade policy, the firm’s expected profit is increased and carbon emissions are reduced.

Keywords: Cap-and-trade; Carbon emissions; Carbon tax; Single-period model (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/978-1-4614-3600-3_13

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