Production optimization considering environmental performance and preference in the cap-and-trade system

Abstract

Many countries like China are in a dilemma between economic growth and environmental deterioration (e.g., smog weather). Simultaneously, a growing people concern the product's environmental performance along with their improving environment awareness. This paper focuses on the impacts of carbon footprint and low-carbon preference on the production decision of emission-dependent firms in the cap-and-trade system. The cap-and-trade system uses the total “cap” to attain environmental goals and allows “trade” to achieve the effective scheduling through market regulation. Under this mechanism, through analyzing the influence of carbon footprint and low-carbon preference on the market supply and demand, we build a production optimization model and develop the optimal decisions. Several interesting management insights on environmental preference and policy are concluded.