Variability in Emissions Cost: Implications for Facility Location, Production and Shipping

Abstract

As countries around the world formulate policies to mitigate greenhouse gas (GHG) emissions, policymakers must weigh the merits of implementing an emissions tax or a cap-and-trade system. A primary barrier to the adoption of a capand-trade system is the idea that variability and uncertainty in the permit price (and hence a firm's emissions cost) has an adverse impact on domestic manufacturing firms. An emissions tax, on the other hand, can establish a fixed, certain emissions cost. Analysis in this chapter, however, suggests that variability in the emissions cost under a cap-and-trade system is beneficial, stimulating domestic manufacturing, compared to a mean-equivalent emissions tax. Hence, if emissions intensity among foreign competitors located in the region without climate policy is high, then variability in the emissions cost decreases expected emissions from production. Although global emissions may increase after a region initiates climate policy, due to a shift in manufacturing to a region without climate policy and increased transportation, that leakage phenomenon might be mitigated by adopting a cap-and-trade system, compared to a mean-equivalent tax.

Electric Power Industry: Operational and Public Policy Challenges and Opportunities

“…, Condon and Ignaciuk , İşlegen et al. ). It is argued that leakage can be eliminated by border adjustments , such as imposing carbon tariffs on imported goods so that they incur the same emissions costs as incurred by goods produced locally.…”

Technology Choice and Capacity Portfolios under Emissions Regulation

“…Drake () and İşlegen et al. () study the effect of regionally asymmetric emissions regulation in models of imperfect competition. Drake () does so with a focus on discrete technology choice and border adjustment without uncertainty, while İşlegen et al.…”

“…Drake () does so with a focus on discrete technology choice and border adjustment without uncertainty, while İşlegen et al. () do so with a focus on the impact of emissions price uncertainty on competition and trade when firms do not have a technology choice. Caro et al.…”

Design Incentives Under Collective Extended Producer Responsibility: A Network Perspective

“…One stream in the operations management literature highlights the importance of understanding the impact of operational features or implementation choices on policy outcomes (e.g., Islegen et al 2015, Drake et al 2015, Raz and Ovchinnikov 2015, Granot et al 2014. Another stream of research employs analytical models to evaluate the economic and environmental tradeoffs associated with green product design decisions (e.g., Chen 2001, Agrawal andÜlkü 2012.…”