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

Abstract

Carbon emission regulation policies have emerged as mechanisms to control firms’ carbon emissions. To meet regulatory requirements, firms can change their operations or invest in green technologies. In this thesis, we analyze a retailer’s joint decisions on inventory replenishment and carbon emission reduction investment under three carbon emission regulation policies. Particularly, we first study 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. We later extend our analysis to a retailer operating in a newsvendor setting, taking into account the existence of environmentally sensitive customers.