Emission-Dependent Production And Operation Optimization With Emission Permits And Trading

In company with the advance of industrial modernization, massive increase in harmful emissions leads to higher probability of natural disasters and human diseases. As a typical example, carbon (CO2) emission is proved to be the principal cause of global warming. To mitigate the global warming and prevent disasters happening, climate security has become the public welfare. So the global political entity should take note of the importance and urgency of emission reduction and propose some feasible measures to reduce the risk of climate change, in order to maintain the sustainability of human and social development. Through the joint efforts of the governments around the world, a series of worldwide summit with carbon emission as a central issue have been held. Countries in the world finally reached a series of legal covenant after long and arduous negotiations. United Nations Framework Convention on Climate Change (UNFCCC) with entry into force on March 21,1994, which is the first international covenant on controlling emission of greenhouse gas such as Carbon dioxide and provides obligations and compliance procedures on greenhouse gas emission reduction for developed and developing countries, is a basic cooperation framework for international community to cope with the problem of global climate change. Kyoto Protocol, as the deepening of UNFCCC, came into effect from February 16,2005, becoming the milestone on greenhouse gas emission reduction. It firstly set emission limits at the national level for the developed countries, and has universal legally binding; and it also proposes a variety of flexible emission reduction mechanism, of which the most attention is the introduction of "international emissions trading" (IET) mechanism. This mechanism essentially takes emissions permits as resources commodity status similar to energy, raw materials, capital, labor and other traditional factors of production, which may be free traded through specific emissions trading market. Kyoto Protocol sets a "cap and trade" system, which achieves an effective emission reduction through both regulation and market. The United Nations Climate Change Conference adopted the "Bali Roadmap" resolution on December 15, 2007, and stressed to seek a common international solutions response to global warming through international cooperation adherence to the "common but differentiated responsibilities" principle. Until the end of 2009, in the Copenhagen General Assembly high-level officials from nearly 200 countries discussed of the Continuous Target after the expiration of a commitment about Kyoto Protocol, but ultimately did not reach an agreement with legal effect.Although many countries don't come to agreement on specific objectives and implementation of programs in these climate conferences, emissions reduction and the emissions cap and trade has become the consensus of the parties and the inevitable trend. With emission reduction targets set in the Convention, countries and regions must ultimately devolve their national-level emissions reduction targets to the production operational level of individual industrial entities, and constitute emission trading policy and impose emission quotas to emission-dependent firms. It is foreseeable that emission will be restricted more and more strictly in the future, which will significantly impact production-related decision-makings for the emission-dependent firms (such as energy, chemicals, electric power). In addition, in the emissions cap-and-trade system, emission has become the capital of the market value. Those organization institutions which are capable of carrying out emission reduction projects (such as purifying processing organizations, forestation organizations, etc.) will be qualified to become emissions permits suppliers. As they earn profits by selling emissions permits and don't entirely depend on financial support, emissions reduction will be voluntary actions of these organizations, so as to inject new life into environmental protection.The dissertation aims to explore the impact of emission factors to production and supply chain efficiency in the micro-operational level. Based on optimization theory and game theory, it adopts the precise formalization approach, and discusses in depth the issues related to emission-dependent production and supply chain. Mathematical models were established to provide theoretical support for the practice of emission-dependent production and supply chain decision-making.According to the different research objects, the dissertation can be divided into two parts.The first is production decision problems for single emission-dependent manufacturer, including Chapters 2 to 4. In such cases, the manufacturer can obtain emissions permits in three different ways, including emission quota allocated by the government, emissions permits purchased via emission trading, and emissions savings via purification. With government emission quota exogenous, manufacturer will make a trade-off between trading and purification and make the profit-maximizing production decision. First, we discuss optimal emission-dependent production decision under deterministic demand in two cases of fixed and variable purification level respectively; and then discuss the similar problem under stochastic demand in two cases of single-and multi-time purification respectively.The second focuses on emission-dependent supply chain, which is discussed in Chapter 5. A simple two-stage supply chain including emissions permits supplier and emission-dependent firm is considered in the context of news-vendor. We analyses in-depth the game process between players (members of the supply chain), and discusses the optimal decision and the resulted profit of each member on this basis.Following model analysis of the above problem, each section gives a typical numerical example and makes sensitivity analysis to show the impact of the various exogenous parameters to the optimal decision and optimization results, mainly including government emission quota, the fluctuation of market demand, emissions permits trading price, and purification costs. By the sensitivity analysis of these parameters, several significant managerial implications are concluded.The main innovations of this dissertation lie in three aspects as follows:(1) Innovation on the topics selected:The dissertation focuses on the impact of emission factors to micro-manufacturing operations of firm and supply chain while the existing emission-related literatures aim mostly at the problem in the macro level. Some scholars have even confirmed that there are no emission-related operational researches published in the international mainstream academic journals by far.(2) Innovation on the research thoughts:The dissertation studies the trade-off for emissions-dependent manufacturer, considering a variety of sources of emission permits. Additionally, on the emission-dependent supply chain, emissions permits supplier, as a member of the supply chain, is particularly emphasized on its participation in the game of competition and cooperation with downstream emission-dependent firm.(3) Innovation on research conclusions:The dissertaion, based on analytical models, discusses various exogenous parameters related to emissions (such as the fluctuation of market demand, the fluctuation of the trading price of emissions permits, government emission quota, etc.) and the impact of these parameters to the optimal decision-making of the parties and to the system efficiency. Several valuable managerial implications are concluded. In particular, through the discussion on government emission quota, the influence of governmental environmental policies to the operations of enterprise and industry is disclosed, which provide a theoretical basis for the Government to adopt sound and effective environmental policies according to environmental objectives.