The capacity acquisition and disposal problem with carbon emission cost

With the increasing concerns on global warming, low-carbon economy and sustainable development have emerged as an important aspect that affects the business decisions. In this research, we study the effect of carbon emission in the capacity planning problem. This problem is important since equipment has the so-called "lock-in effect", that is, once it is installed, it is difficult to change within a relatively long time period (more than ten years, usually). In particular, we study a multi-stage capacity acquisition and disposal problem with age-dependent operating cost, maintenance cost, salvage cost, as well as carbon emission level. There is a carbon emission allowance in each period and the company can buy extra allowance or sell saved allowance in an outside carbon trading market. Carbon trading cost is considered in the capacity planning decisions. We first consider the problem in a deterministic setting and model the problem with a mixed integer program and then study the problem in a stochastic setting in which the demands and carbon trading prices are random. For the stochastic case, we model the problem as a multi-stage dynamic stochastic network program and provide both exact and approximating methods to solve it.