A decision support system for joint emission reduction investment and pricing decisions with carbon emission trade

Abstract

Carbon emission trade is one of the most common carbon emission regulation policies, manufactures must take measures to cope with this new situation. This paper dedicated to design a decision support system (DSS) based on our proposed model. We examined the manufacture’s joint emission reduction effort and pricing decisions with carbon emission trade. We formulate this problem as a stackelberg game, the manufacture is leader, the retailer is follower, the optimal emission reduction effort and pricing decisions are derived. The impact of carbon emission trade on these decisions and profits is also investigated. A numerical example is also provided to verify our model and findings. We found that manufactures will invest to reduce emission and increase their wholesale price compared with the situation without carbon emission trade. A decision support system (DSS) integrating the proposed model and the analysis is developed as an efficient decision tool to help manufactures and retailers to optimize their decision. The visualized outputs of DSS allow the decision makers to gain better understanding the impact of carbon emission trade on decisions, facilitating their decision making process in carbon economics era.