The Emission Ordering Strategy with Green Awareness under the Emission Trading System (ETS)

Abstract

Global concerns for environmental sustainability obligate manufacturers under the Emission Trading Scheme (ETS) to reduce carbon emission substantially. While green awareness inspires manufacturer investment in green upgrade, it is crucial for emission-limited firms to improve production scheduling in order to compete in the stringent low-carbon market. This paper solves the emission ordering problem by considering the green investment strategy. It adopts newsvendor models with novelty in the use of the Lagrange Multipliers and Karush-Kuhn-Tucker (KKT) conditions to achieve the optimality subject to emission constraints. Although this method has been used in economics, it is first explored in this paper for low-carbon production to achieve optimality together with the emission targets. The results call for the manufacturer to make better decisions for achieving both the optimality and the emission reduction.