unpublished

Radoin Belaouar and Arash Fahim and Nizar Touzi


Modelisation Group (2014) : Optimal Production Policy in Carbon Emission Marke (preprint)




Optimal Production Policy in Carbon Emission Marke (preprint)

Radoin Belaouar and Arash Fahim and Nizar Touzi




unpublished

The aim of this paper is to address the effect of the carbon emission allowance market on the production policy of a polluter production firm. We investigate this effect in three cases; when the firm is not a large polluter, when it has a large contribution in emission of carbon but can not affect the risk premium of the allowance market, and when it is a large contributor in the emission of carbon and can change the risk premium by its production. In our simple model, we ignore any possible investment of the firm in pollution reducing technologies. We formulate the problem of optimal production by a stochastic optimization problem. Then, we show that, as expected, the market reduces the optimal production policy in the first two cases. However, when the large producer activities can change the market risk premium, the cut on the production and consequently pollution cannot be guaranteed. In fact, our numerical test shows that for some models in our framework, the increase in production, and thus pollution, can increase the profit of the firm.

To cite this publication :


Radoin Belaouar, Arash Fahim, Nizar Touzi: Optimal Production Policy in Carbon Emission Marke (preprint). 2014.





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