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Multi-stage emissions management of a steel company

  • S.I.: Stochastic Optimization:Theory&Applications in Memory of M.Bertocchi.
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Abstract

We present a multi-stage model for determining the optimal production and emissions coverage for an industrial company participating in the European Emissions Trading System. This model is adapted for a real-life European steel company. A mean-multiperiod CVaR is used as a decision criterion. There are two stochastic parameters—market demand for products and emissions allowance price. The aim of this paper is to explore the costs and risk of a company caused by emissions trading. The presented model is solved for various values of the risk aversion parameters and initial price of the allowance. As a result, it is found that the production is little influenced by the price of allowances and it nearly does not depend on risk-aversion. The probability of the company’s default, on the other hand, is significantly influenced by the emission prices. Futures on allowances as well as banking (i.e., transferring allowances between periods) are used to reduce the risks of the emissions trading. We further exploit the same situation under different settings, namely, given random price margins, and time-dependent, deterministic and positively contaminated distributions of demand. In all these cases, the results follow patterns similar to those given the original setting.

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Notes

  1. Even if the prices started at the prices from the time of submission of this paper, i.e., 20 EUR, the production still would not be affected.

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Acknowledgements

This work was supported by Grant No. GA 16-01298S of the Czech Science Foundation. The support is gratefully acknowledged. The authors would also like to thank three anonymous referees for valuable comments and suggestions.

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Authors and Affiliations

  1. Faculty of Economics, VŠB - Technical University of Ostrava, Sokolská 33, Ostrava, Czech Republic

    František Zapletal

  2. The Institute of Information Theory and Automation of the CAS, Pod Vodárenskou věží 4, Prague, Czech Republic

    Martin Šmíd

  3. Faculty of Mathematics and Physics, Charles University in Prague, Sokolovská 83, Prague, Czech Republic

    Miloš Kopa

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  1. František Zapletal
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  2. Martin Šmíd
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  3. Miloš Kopa
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Correspondence to Miloš Kopa.

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Zapletal, F., Šmíd, M. & Kopa, M. Multi-stage emissions management of a steel company. Ann Oper Res 292, 735–751 (2020). https://doi.org/10.1007/s10479-019-03192-4

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  • DOI: https://doi.org/10.1007/s10479-019-03192-4

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