Title: The impact of carbon emission cap and carbon trade mechanism on the order decision with stochastic demand

Authors: Weihua Liu; Wenchen Xie; Ping Qiu

Addresses: College of Management and Economics, Tianjin University, No. 92, Weijin Road, Nankai District, Tianjin, 300072, China ' Department of Industrial and Systems Engineering, Texas A&M University, 101 Bizzell St, College Station, TX77840, USA ' Warwick Manufacturing Group of University of Warwick, The University of Warwick, Coventry CV4 7AL, UK

Abstract: This paper mainly discusses the impact of carbon emission cap-and-trade mechanism on the order decision-making with stochastic demand. First, considering the stochastic demand, carbon emission cap-and-trade, a single-cycle order model has been established. Then this model is solved and the optimal order quantity is put forward. Many interesting observations which are different from the order decision-making for stable demand are found out. The research shows that: a value range of carbon trading price exists; carbon cap-and-trade mechanism can motivate the organisations to reduce carbon emissions effectively; whether the company should buy carbon credits depends on the actual carbon emission and carbon emission cap; reducing carbon emissions does not necessarily lead to high cost. In certain situations, companies can reduce carbon emission and total cost, increase total revenue simultaneously.

Keywords: low-carbon supply chains; supply chain management; SCM; carbon emissions cap; carbon trade mechanism; stochastic demand; order decision models; CO2; carbon dioxide; carbon trading price; carbon credits.

DOI: 10.1504/IJSTL.2015.069125

International Journal of Shipping and Transport Logistics, 2015 Vol.7 No.3, pp.347 - 376

Available online: 19 Mar 2015 *

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