Optimal Replacement, Retrofit, and Management of a Fleet of Assets under Regulations of an Emissions Trading System

Abstract This paper presents a model for parallel replacement and improvement for a fleet of assets to minimize both the economic costs and greenhouse gas (GHG) emissions where the emissions are limited by an emissions trading system also known as cap-and-trade. The firm which owns the assets has the options of using, storing, improving, or salvaging them. Different technological types and their performances have been considered for the assets. The firm has the option of purchasing new assets from varying technologies and/or improving its existing assets to a higher-performance type. The model considers the possibility of both banking the emission allowances or trading them in the market. The model was applied to data from a fleet of excavators in Ontario, Canada. The model and the findings of this case study could help emitter firms to simultaneously manage the emissions and costs of their assets in a jurisdiction regulated by cap-and-trade.