Effect of raw material substitution on the facility location decision under a carbon tax policy

Y. Mechouar (mechouar.youcef@gmail.com), Vincent Hovelaque and Carl Gaigne
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Y. Mechouar: RITM - Réseaux Innovation Territoires et Mondialisation - Université Paris-Saclay

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Abstract: Current environmental issues that have been made unavoidable by environmental regulations have become new constraints for industrial companies. In this paper, we consider a joint production-location problem for supply chains under a carbon tax policy on transport-related carbon emissions. We characterize the relationship that links the production level to the input quantities by considering a production function, namely, constant elasticity of substitution (CES) function. Our study focuses on the potential impact of increased transportation costs due to carbon taxation on the joint production-location decision. We find that the location-production configuration differs according to the degree of substitutability among the raw material quantities. More importantly, we observe that a higher carbon tax is more likely to cause a significant jump in firm location choice and a considerable change in production decisions when a firm has high flexibility in its ability to substitute among input quantities.

Keywords: Facility location; Raw material substitution; Environmental issues; Carbon tax (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ene and nep-env
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03517835v1
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Published in EURO Journal on Transportation and Logistics, 2022, 11, ⟨10.1016/j.ejtl.2021.100061⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03517835

DOI: 10.1016/j.ejtl.2021.100061

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