Carbon tax and sustainable facility location: The role of production technology

Carl Gaigne, Vincent Hovelaque and Youcef Méchouar
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Youcef Méchouar: Univ Rennes, CNRS, CREM UMR 6211, F-35000 Rennes, France

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: Recent studies on facility location under the carbon pricing scheme highlight that increas-ing the carbon price can ensure meaningful reductions in transport-related greenhouse gas emissions (GHGs). Indeed, when we assume the bill of materials (BOM) as a production technology (i.e. complementary of inputs), a higher carbon price does not change the supply planning because the input proportions are ?xed, but it does increase the total transport cost, which pushes the ?rm to make its location choice more sustainable (lower level of emissions). However, when we account for possible substitution between input quantities, this may cease to hold. In this paper, we propose to revisit the Production-Location Problem (PLP) considering transport-related carbon emission mitigation due to carbon taxation and production technologies that allow complementarity or substitution among input quantities. We ?rst show that cost-minimizing location may differ from carbon emission minimizing location, regardless of the production technology type. We also ?nd that an increased car-bon tax may increase carbon emissions when we enable substitution across input quantities. Gradual changes in carbon tax affect the relative delivered prices of inputs (the per-unit procurement and transportation costs of an input compared to the costs of another) such that the ?rm has an incentive to relocate its facility and substitute among input quantities, leading to new shipping patterns that can generate a higher level of pollution under certain parameters.

Keywords: Location; transport-related carbon emissions; carbon tax; production technology; sustainability (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-tre
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Related works:
Journal Article: Carbon tax and sustainable facility location: The role of production technology (2020)
Working Paper: Carbon tax and sustainable facility location: The role of production technology (2020)
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