The impact of carbon emission cap and carbon trade mechanism on the order decision with stochastic demand

This paper mainly discusses the impact of carbon emission cap‐and‐trade mechanism on the order decision‐making with stochastic demand. First, considering the stochastic demand, carbon emission cap‐and‐trade, a single‐cycle order model has been established. Then this model is solved and the optimal order quantity is put forward. Many interesting observations which are different from the order decision‐making for stable demand are found out. The research shows that: a value range of carbon trading price exists; carbon cap‐and‐trade mechanism can motivate the organisations to reduce carbon emissions effectively; whether the company should buy carbon credits depends on the actual carbon emission and carbon emission cap; reducing carbon emissions does not necessarily lead to high cost. In certain situations, companies can reduce carbon emission and total cost, increase total revenue simultaneously.