Abstract
The paper develops a finite-horizon inventory model with source-based emissions, plan-based green investments under inflation, and the present value of money. The cap-and-trade policy is used as the carbon policy. The model is solved in a bi-objective scenario where the two objectives are maximization of the present value of net profit and minimization of the total emission. We find the Pareto optimal solutions represented by a Pareto front using the ε-constraint method. A flowchart is provided to find the non-dominated solutions. Pareto solutions for three special cases (no inflation, carbon tax, and no green investments) are also derived. In our sensitivity analyses, we observe that the carbon quota does not affect the optimal policy. It only affects the optimum profit. Our model shows that green investment is beneficial for the polluting firm and also for the environment.
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