Analysis of the single-period problem under carbon emissions policies
Handbook of newsvendor problems: Models, extensions and applications
Cap-and-trade; Carbon emissions; Carbon tax; Single-period model
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.
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ISBN of the source publication: 9781461435990
Accepted Author Manuscript
Song, J., & Leng, M. (2012). Analysis of the single-period problem under carbon emissions policies. In T.-M. Choi (Ed.), Handbook of newsvendor problems: Models, extensions and applications (pp. 297-313). doi: 10.1007/978-1-4614-3600-3_13