Joint decisions on inventory replenishment and emission reduction investment under different emission regulations

TLDR

Carbon emission regulation policies are mechanisms to control firms’ emissions, prompting firms to adjust production planning or invest in green technologies. The study analyzes a retailer’s joint inventory replenishment and carbon emission reduction investment decisions under three regulation policies, comparing investment opportunities and policy impacts on costs and emissions. We extend the economic order quantity model to incorporate carbon emission reduction investment under cap, tax, and cap‑and‑trade policies, and conduct a numerical study to illustrate the effects of investment availability and regulation parameters. Analytically, we find that investment opportunities not only comply with regulations but also further reduce emissions and lower costs, and numerical results illustrate how investment availability and regulation parameters influence these outcomes.

Abstract

AbstractCarbon emission regulation policies have emerged as mechanisms to control firms’ carbon emissions. To meet regulatory requirements, firms can make changes in their production planning decisions or invest in green technologies. In this study, we analyse a retailer’s joint decisions on inventory replenishment and carbon emission reduction investment under three carbon emission regulation policies. Particularly, we extend the economic order quantity model to consider carbon emissions reduction investment availability under carbon cap, tax and cap-and-trade policies. We analytically show that carbon emission reduction investment opportunities, additional to reducing emissions as per regulations, further reduce carbon emissions while reducing costs. We also provide an analytical comparison between various investment opportunities and compare different carbon emission regulation policies in terms of costs and emissions. We document the results of a numerical study to further illustrate the effects of investment availability and regulation parameters.Keywords: green technologycarbon emissionsinvestmenteconomic order quantity