Emissions intensive firms, like utility companies with coal-fired power plants, can invest in process improvement projects at their existing facilities to reduce carbon emissions. An example of such an investment is to retrofit coal-fired power plants with the carbon capture and sequestration technology. Under different carbon regulations, their investment decisions result in a change of the production cost structure and/or impose a constraint on production quantity. We study joint production capacity and investment decisions under command-and-control and market-based regulations (including carbon tax and cap-and-trade) for an emissions intensive company that faces stochastic demand. We analytically compare the company’s performance along four dimensions, including profit, total emissions, investment amount, and investment timing. We find that the company can perform better under either command-and-control and cap-and-trade along any of these four dimensions, depending on the company’s investment cost and emissions regulation parameters.
|Original language||English (US)|
|Number of pages||44|
|State||Published - 2012|