Effect of Carbon-tax and Cap-and-trade mechanism on an inventory system with price-sensitive demand and preservation technology investment

Abstract

In today's global decision-making context, government and organizations are highly concerned with environmental degradation caused by carbon emissions. Being environmental conscious, this paper investigates two different carbon policies viz., “Carbon tax and Cap-and-trade mechanism". It is observed that the main sources of carbon emissions are transhipments, inventory holding, inventory deterioration, and its preservation. Demand for the item is considered to be selling price dependent. Further, a comparison between a “carbon tax" and \cap-and-trade" policies has been illustrated. Some important managerial insights are obtained from numerical and sensitivity analyses. The present paper contributes to the existing literature of carbon control policies by developing optimal inventory models dealing with deteriorating items with preservation technology. Results suggest that firms should implement “Cap-and-trade" policy to increase their total profit, which at the same time, will help in reducing the carbon emissions.