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Analysis of the Single-Period Problem under Carbon Emissions Policies

In: Handbook of Newsvendor Problems

Author

Listed:
  • Jingpu Song

    (Shanghai Institute of Foreign Trade)

  • Mingming Leng

    (Lingnan University)

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.

Suggested Citation

  • Jingpu Song & Mingming Leng, 2012. "Analysis of the Single-Period Problem under Carbon Emissions Policies," International Series in Operations Research & Management Science, in: Tsan-Ming Choi (ed.), Handbook of Newsvendor Problems, edition 127, chapter 0, pages 297-313, Springer.
    • Handle: RePEc:spr:isochp:978-1-4614-3600-3_13
    DOI: 10.1007/978-1-4614-3600-3_13
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