The carbon-constrained EOQ model with carbon emission dependent demand

Abstract

Currently companies are looking for solutions to reduce carbon emissions associated with their operations. Operational adjustments, such as modifications in batch sizes or order quantities have proven to be an effective way to decrease emissions. In this paper, a novel model is proposed that takes into account the link between an inventory policy (EOQ), total carbon emissions, and both price and environmental dependent demands. In the case of an exogenous price, two optimal quantities are determined which maximize a retailer׳s profit and which minimize carbon emissions. Conditions that allow a company to maximize profit while minimizing emissions and mechanisms that allow a firm to maximize its profit and to decrease its carbon emissions are determined. In the case of an endogenous price, some empirical results are also discussed. When a firm optimizes its profit through both its selling price and its order quantity, some experiments match empirical observations. On the one hand, an environmental strategy is more significant for cheaper and green-labeled products. On the other hand, a public mechanism such as a carbon tax will decrease total and marginal emissions.