Production and Inventory Based on Carbon Emission Trading Mechanism and Investment of Emission Reducing Technology

Climate changing has attracted the world’s attention and the reduction of carbon emission has become international consensus. Carbon emission trading as one of the most effective carbon reducing mechanisms will have impact on manufacturers’ decisions inevitably. This paper aims to study the effects of carbon emission trading and carbon reducing investment on the production-inventory strategy. Based on the well-known Arrow-Carlin model, a dynamic production-inventory model was built in the context of carbon emission trading. The optimal production rate, inventory level, total cost, carbon trading and emission were compared before carbon emission trading and thereafter. Furthermore, this paper analyzed the production-inventory strategy with the changing of carbon reducing investment. The results showed that manufacturers tended to sell part of their emission permits and production plan became more flat; although the cost of production and inventory rose, the total cost dropped; when the investment of emission reducing technology went up, more permits would be sold and production plan fluctuated more severely, which leaded to a lower inventory and total cost.