Optimal Production And Emission Reduction Decisions For Construction Machinery Remanufacturing Firms Under Carbon Options

With the advance of economy,resource consumption and environmental pollution have attracted extensive attention.Among them,greenhouse gas emissions dominated by carbon dioxide have made many natural problems more adverse.To mitigate excessive carbon emissions,the governments all around the world and firms have taken different measures.From the perspective of governments,with the development of the carbon trading market,the implementation of carbon cap-and-trade policy is considered to be one of the most flexible ways of controlling carbon emissions and then is gradually adopted by many countries.From the perspective of firms,large-scale construction machinery firms such as Caterpillar have begun to implement remanufacturing strategies,which is considered to be a new low-carbon production mode that can effectively achieve resource reuse and environmental protection.In addition,under the low-carbon policy,the construction machinery firms with large emissions have also began to invest in carbon emission reduction technologies to lower carbon emissions,thereby reducing operating costs and achieve low-carbon development.However,the volatility of carbon price affects the development of the carbon market,and also leads to the uncertainty of firms’ operation costs,which has an impact on the strategic development of firms.If the risks caused by carbon price volatility can be effectively hedged,firms can implement production and emission reduction activities better.The purpose of this study is to help firms reduce their operational risks and improve their economic and environmental benefits,which is of great significance in both academic and practical aspects.Taking the construction machinery industry as an example,this dissertation considers the volatility of carbon price under the cap-and-trade policy regulation,and then studies the optimal production and emission reduction decisions of remanufacturing enterprises.The objective functions of expected profit or utility of the remanufacturing firm are developed using constraint optimization method,consumer utility theory and mean-variance method.First,the optimal production decisions of remanufacturing firms under carbon price volatility are studied,which lays a foundation for subsequent research.Then,through introducing carbon options,the dissertation studies the optimal operation decisions of firms under different environments.Specifically,the research contents are in the following:(ⅰ)This dissertation introduces research background and deficiencies with previous studies from the following aspects: restricting carbon emissions by laws and regulations,improving economic and environmental benefits through remanufacturing business,the current situation of construction machinery remanufacturing,promoting the development of carbon finance by carbon trading market,and remanufacturing of construction machinery under carbon options.Subsequently,the relevant researches at home and abroad are summarized from the following three aspects: remanufacturing and emissions reduction under low-carbon policy,carbon options,and the remanufacturing operation management of construction machinery,and then the deficiencies of existing researches are reviewed,which provides a theoretical basis for subsequent research.(ⅱ)Considering the risk-averse behavior of remanufacturing firms,this dissertation studies the optimal production decisions under carbon price volatility.Firstly,the risk-neutral scenario is studied,and the optimal production quantities under different remanufacturing strategies are derived;Secondly,the utility function of the firm is constructed based on the mean-variance method,and then the risk-averse scenario is studied,and the corresponding optimal solutions are derived;Then,the optimal solutions of production quantities,consumer surplus and environmental impact under the two scenarios are compared and analyzed;Finally,the impacts of risk aversion on production quantities,profit,utility,consumers and the environment are examined through numerical examples.This section is the basis of the full text and provides the foundation for the introduction of carbon options.(ⅲ)Under the carbon price volatility,this dissertation studies the optimal production decisions of construction machinery remanufacturing firms with carbon options.First,the optimal quantity of carbon options purchased by the firm is obtained through modeling.On this basis,the model of maximizing the expected profit of firms under carbon options is developed,and the optimal production quantities under different remanufacturing strategies are obtained;Secondly,the influence of carbon option price and exercise price on optimal production quantities,prices and expected profits are analyzed;Then,the production quantities,prices,consumer surpluses and environmental impacts under the two scenarios with and without carbon options are compared and analyzed;Finally,the impacts of carbon options on production quantities,expected profits,consumers and the environment are analyzed through numerical examples.(ⅳ)Considering the investment on carbon emission reduction technology,this dissertation studies the optimal production and emission reduction decisions of construction machinery remanufacturing firms under carbon options.Firstly,the models of maximizing the expected profit of remanufacturing firms with and without carbon options are constructed,and the two-stage optimization problem is solved based on the backward induction method;Secondly,given the carbon emission reduction rate,the optimal production quantities,consumer surpluses and environmental impacts under the two scenarios are compared;Then,the influences of carbon emission reduction strategy on the above optimal solutions are discussed,and the optimal carbon emission reduction rates are obtained;Finally,the impacts of carbon options on production quantities,expected profits,consumers and the environment are analyzed through numerical examples,and the optimal carbon emission reduction rates under the two scenarios are compared.(ⅴ)Focusing on the initial operation stage of firms,this dissertation studies the two-period production and emission reduction decisions for construction machinery remanufacturing firms under carbon options.Firstly,the models of maximizing the expected profit of remanufacturing firms with and without carbon options are developed,and the three-stage optimization problem is solved based on the backward induction method;Secondly,given the carbon emission reduction rate,the optimal production quantities,prices,consumer surpluses and environmental impacts of the two period are compared;Then,the impacts of carbon emission reduction strategies on optimal production quantities,prices and consumer surpluses are discussed;Finally,the optimal carbon emission reduction rates are analyzed based on numerical examples,and the impact of carbon price volatility is discussed.Based on the above research contents,the main conclusions of this dissertation are as follows: with the increase of risk aversion coefficient(carbon price volatility),the firm’s expected profits,utility,consumer surplus,and environmental impact decrease;Introducing carbon options can improve consumer surplus and environmental impact;If the carbon reduction coefficient is small(large),introducing carbon options would reduce(increase)the optimal carbon reduction rate;After introducing carbon options,an increase in the carbon price volatility will increase firm profit and consumer surplus,while reducing environmental benefits.The main contributions of this dissertation are in the following:(ⅰ)Based on the volatility of carbon price,this dissertation introduces carbon options in operation management to hedge corresponding risks.By comparing the optimal solutions with and without carbon options,the impacts of introducing carbon options on remanufacturing firms are analyzed.In literature,the researches on carbon options are mainly focused on the theoretical and empirical aspects,and few studies consider it in operation management.This dissertation introduces carbon option to hedge the risks caused by carbon price volatility,which can fill this gap of carbon option application in operation management.(ⅱ)Under the carbon price volatility,the integrated optimization of production and carbon emission reduction decisions of remanufacturing firms is studied.The impacts of implementing carbon emission reduction strategy on brand-new and remanufactured products are different,and the carbon price volatility leads to the uncertainty of the costs of the two products.How to mitigate the risks caused by the uncertainty is a significant issue for firms,which makes the production decisions and carbon emission reduction decisions of firms more complex.Therefore,this dissertation introduces carbon options to hedge the risks caused by carbon price volatility,and provides a favorable tool for firms to make production and emission reduction decisions.(ⅲ)For large-scale emission-dependent firms such as construction machinery,this dissertation considers the volatility of carbon price in remanufacturing operations management.Considering the risk aversion behavior of construction machinery remanufacturing firms,the utility function is constructed based on the mean-variance model.Most of the prior literature assumes that the carbon price is fixed,and rarely considers the volatility of the carbon price.Combined with the carbon price fluctuations in the carbon market,this dissertation discusses the impact of carbon price volatility on the production decisions of remanufacturing firms,so as to make it more in line with the reality and more instructive for construction machinery firms.