A green inventory model considering environmental emissions under carbon tax, cap-and-offset, and cap-and-trade regulations

ABSTRACT This study assesses green technology investment as well as carbon pricing regulations, including carbon tax, cap-and-offset, and cap-and-trade, to control carbon emissions from retailer inventory. A green inventory model is studied due to a lack of investigation on the simultaneous effect of green technology investment and variable demand. Prior studies neglected the demand pattern that is sensitive to product quality, pricing, and the promotional effort of a green inventory model. This study contributes guidance to retailer managers on the optimal price and replenishment cycle given a carbon pricing regulation and green technology investment plan. This study maximizes the total profit using the classical optimization technique. Two cases are involved in representing the inventory model with and without green technology investment. The carbon pricing regulations were studied. Essential theoretical derivations have been provided to show the concavity of the anticipated model. The results prove the advantages of green technology investment and carbon pricing implementation. The numerical example and sensitivity analysis are shown, and the cap-and-trade policy works efficiently within constraints to curb carbon emissions. The manager established an optimal selling price and the replenishment cycle period by forecasting the amount of investment in green technology and some transportation cost variables. Graphical abstract