Multi-stage emissions management of a steel company
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Multi-stage emissions management of a steel company František Zapletal1
· Martin Šmíd2
· Miloš Kopa3
© Springer Science+Business Media, LLC, part of Springer Nature 2019
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. Keywords Multiperiod CVaR · Multi-stage model · Stochastic programming · Emission allowance · Steel company
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Miloš Kopa [email protected] František Zapletal [email protected] Martin Šmíd [email protected]
1
Faculty of Economics, VŠB - Technical University of Ostrava, Sokolská 33, Ostrava, Czech Republic
2
The Institute of Information Theory and Automation of the CAS, Pod Vodárenskou vˇeží 4, Prague, Czech Republic
3
Faculty of Mathematics and Physics, Charles University in Prague, Sokolovská 83, Prague, Czech Republic
123
Annals of Operations Research
1 Introduction The European Emissions Trading System (EU ETS) has become a subject of discussion among both politicians and researchers since immediately after its launch in 2005. This system exerts pressure on cleaner production and thus on protection of the environment on one side. But, on the other side, it has also a negative effect on competitiveness of European companies as it brings along additional costs and financial risks. Under the EU ETS, each tonne of CO2 released to the atmosphere during a single year must be covered by one emission allowance (EUA—European Union Allowance) by the end of March in the following year (see Council of European Union 2003). In this paper, we explore a quantitative impact of the ETS on a CO2 emitting company, namely on its profitability and default probability. Moreover, we explore to what extent the risks associated with emission trading can be reduced. The EUAs can be purchased either in auctions or on the secondary market. To compensate the burden imposed by the sy
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