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Green Renewal: Incorporating Environmental Factors in Equipment Replacement Decisions under Technological Change - Essay Example

The concept of equipment replacement is essential in virtually every industrial setting. The firms have to decide on whether to continue with their existing technology or to drop it for a better and more reliable technology; this follows the ever growing quest for using clean energy. This is a fact that firms and policy makers are aware of and try to establish a workable balance regarding efficiency and environmental friendliness. They have to come up with a replacement model that incorporates both economic and environmental factors. A certain criteria enable the development of an effective model.

The first step involves problem statement and primary notation. This takes note of the basic operations of the firm. It also aims to assess the added value that the upgrading of the existing technology brings. It evaluates the generation of revenue and expense incurred. This allows the second and more critical criteria. This involves the immediate and long term costs and the projected rewards that arise as a consequence of the upgrading. Policy makers spend most time at this stage due to the consideration given to future prospects that could often turn out to be elusive.

Firms have to device ways of ensuring that the technology they adopt have environmental compliance mechanisms. This arises due to the laws that concern the environmental awareness that have even become more stringent. After this, the firms can easily develop functional and effective objective functions that depict their prospective gains. If the adopted technology is favorable, this step proves easy and less time consuming. It is, therefore, soon followed by the application procedure that now implements the new policies in terms of technological advancements.

Equipment replacement has proved to be quite a challenge more so in the environment of the ever changing technology. However, three things stand out: incorporating environmental costs in the objective function, environmental compliance mechanism and the decision scope, that is, the period under consideration.

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