A hybrid carbon policy inventory model with emission source-based green investments

The present study analyzes a production-inventory system with hybrid carbon regulation policy. This hybrid carbon policy is a combination of carbon tax and cap-and-trade policies. It considers a single item that can be produced in different qualities. Production cost, setup cost, amount of emissions and the demand rate depend on the quality. The demand rate for each quality is price sensitive. Emissions occur from three sources—setup, production process and stock holding. The firm can invest on green technologies in each emission source separately to reduce emissions. This model considers profit maximization policy. The managerial problem is to select the profit-maximizing quality for production, and to find the optimum values of the production run time, green investments and the selling price. An algorithm is provided to solve the model. The model is illustrated by a numerical example. Sensitivity analysis is also performed.