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Optimizing Organic Waste to Energy Operations

Author

Listed:
  • Baris Ata

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

  • Deishin Lee

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

  • Mustafa H. Tongarlak

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

Abstract

A waste-to-energy firm that recycles organic waste with energy recovery performs two environmentally beneficial functions: it diverts waste from landfills and it produces renewable energy. At the same time, the waste-to-energy firm serves and collects revenue from two types of customers: waste generators who pay for waste disposal service and electricity consumers who buy energy. Given the process characteristics of the waste-to-energy operation, the market characteristics for waste disposal and energy, and the mechanisms regulators use to encourage production of renewable energy, we determine the profit-maximizing operating strategy of the firm. We also show how regulatory mechanisms affect the operating decisions of the waste-to-energy firm. Our analyses suggest that if the social planner's objective is to maximize landfill diversion, offering a subsidy as a per kilowatt-hour for electricity is more cost effective, whereas if the objective is to maximize renewable energy generation, giving a subsidy as a lump sum to offset capital costs is more effective. This has different regulatory implications for urban and rural settings where the environmental objectives may differ.

Suggested Citation

  • Baris Ata & Deishin Lee & Mustafa H. Tongarlak, 2012. "Optimizing Organic Waste to Energy Operations," Manufacturing & Service Operations Management, INFORMS, vol. 14(2), pages 231-244, April.
    • Handle: RePEc:inm:ormsom:v:14:y:2012:i:2:p:231-244
    DOI: 10.1287/msom.1110.0359
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    References listed on IDEAS

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    1. Deishin Lee, 2012. "Turning Waste into By-Product," Manufacturing & Service Operations Management, INFORMS, vol. 14(1), pages 115-127, January.
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