Decisions with options for manufacturers under emission and capital constraints

Emission constraints, capital constraints, and demand uncertainty seriously threaten the survival and development of enterprises. However, few studies have considered the enterprises’ ordering strategies of emission allowances when these threats coexist. Based on this research gap, this paper analyzes the optimal order quantities of emissions allowances under four circumstances when a manufacturer adopts two ordering strategies (pure emission credit strategy and portfolio strategy) under two capital positions (capital adequacy and capital constraints) respectively. The portfolio strategy includes emission options that can help enterprises avoid risks. Through theoretical analysis and numerical simulation, the conclusions show that the sensitivity of the optimal order quantities to exogenous variables is not affected by the manufacturer’s capital position, or even by the ordering strategy. Besides, in a perfectly competitive capital market, the optimal order quantity is independent of the loan interest rate and the initial capital. More importantly, under the same capital position, the portfolio strategy can better meet the capacity demand of the manufacturer and obtain greater profits. Under the same ordering strategy, the working capital will limit the manufacturer’s capacity, and the higher the interest rate, the more serious the restriction.