Fuzzy centralized DEA approach for reallocation of emission permits under cap and trade regulation

Nowadays, sustainable development is the most important issue in the economic development of countries. To achieve sustainable development, countries must pay special attention to environmental aspects. Environmental aspect focuses on ecosystem stability and maintenance of ecologic functions. To make countries more sustainable, Greenhouse Gas (GHG) emission should be reduced and controlled. Cap and trade approach is one of the most effective approaches in controlling GHG emissions. In the cap and trade approach, the total amount of emissions are decreased by reallocating emission permits to countries. The objective of this paper is to propose a centralized Data Envelopment Analysis (DEA) model to reallocate emission permits in the cap and trade system given countries’ efficiencies. Our model evaluates efficiencies of countries in the presence of discretionary and nondiscretionary inputs to reallocate emission permits. The fuzzy set considers uncertainties in parameters. Also, this paper determines the amount of emitted gases that can be reduced without reducing other outputs. A case study demonstrates the applicability of the proposed model. Sensitivity analysis is carried out to investigate the impact of parameters’ variations on results.