Sustainability investments and production planning decisions based on environmental management

Europe 2020 strategy highlighted that sustainable consumption and production requires resource and energy efficiency. In terms of sustainability in energy, carbon footprint, conservation, efficient energy use, and emissions trading are some major concerns. Under the Kyoto Protocol, a trading market mechanism is developed as a policy of reducing the emissions of greenhouse gases in each country. Firms are always considering whether the investment cost on emission reduction matches the benefit. One possible practice is to look for energy savings that are able to offset additional costs from the sustainability investment. This paper aims to establish such a sustainability investment decision model, which uses dynamic programming for solutions to minimize cost. The purpose is to effectively reduce emissions produced during production through investment in energy-saving, high productivity equipment and allocation of production capacity considering emissions (or so-called carbon) trading market price, greenhouse gas emission credits or caps given by the government, inventory cost, and production cost. Management-oriented implications are proposed following analysis of the results of detailed numerical examples.