Abstract: The paper focuses on the impact of emission perm its and trading on the production policy for emission dependent firms.The firm might obtain emission permits in three different ways,i.e.government quota,market trade and purifying,and making atradeoff between them.The characteristic of purifying cost is analyzed,based on it the cases of deterministic and variable purifying levels are investigated respectively.Then,an optimal production model with emission permits and trading is established.Additionally, a sufficient and necessary condition that the firm would prefer purification to trading is proposed,i.e.the so called purifying domain is nonempty.Moreover,the existence and uniqueness of the optimal policy is guaranteed.Finally,a typical numerical example is employed to show the application of the model.

Key words: emission permits and trading, emission reduction, purifying, production policy