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Optimal allocation of carbon credits to emitting agents in a carbon economy

Arava, R and Bagchi, D and Suresh, P and Narahari, Y and Subrahmanya, SV (2010) Optimal allocation of carbon credits to emitting agents in a carbon economy. In: 2010 IEEE Conference on Automation Science and Engineering (CASE) , 21-24 Aug. 2010, Toronto, ON.

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Reduction of carbon emissions is of paramount importance in the context of global warming. Countries and global companies are now engaged in understanding systematic ways of achieving well defined emission targets. In fact, carbon credits have become significant and strategic instruments of finance for countries and global companies. In this paper, we formulate and suggest a solution to the carbon allocation problem, which involves determining a cost minimizing allocation of carbon credits among different emitting agents. We address this challenge in the context of a global company which is faced with the challenge of determining an allocation of carbon credit caps among its divisions in a cost effective way. The problem is formulated as a reverse auction problem where the company plays the role of a buyer or carbon planning authority and the different divisions within the company are the emitting agents that specify cost curves for carbon credit reductions. Two natural variants of the problem: (a) with unlimited budget and (b) with limited budget are considered. Suitable assumptions are made on the cost curves and in each of the two cases we show that the resulting problem formulation is a knapsack problem that can be solved optimally using a greedy heuristic. The solution of the allocation problem provides critical decision support to global companies engaged seriously in green programs.

Item Type: Conference Paper
Publisher: IEEE
Additional Information: Copyright 2010 IEEE. Personal use of this material is permitted.However, permission to reprint/republish this material for advertising or promotional purposes or for creating new collective works for resale or redistribution to servers or lists, or to reuse any copyrighted component of this work in other works must be obtained from the IEEE.
Department/Centre: Division of Electrical Sciences > Computer Science & Automation
Date Deposited: 20 Dec 2011 05:47
Last Modified: 20 Dec 2011 05:47
URI: http://eprints.iisc.ac.in/id/eprint/39120

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