Emission abatement for production system across locations with heterogeneous emission profiles

Abstract

This paper investigates a production system in which the desired system state is a reduction of emissions and the controlling action plan is altering carbon price. From the operations perspective, we develop a model to study how increasing carbon emission costs may affect the joint production and location decisions for a manufacturer across different locations. Specifically, our model incorporates economies of scale and explicitly links product demand, production costs and carbon emission levels to location decisions. The firm's decisions in production batch size and locations are then optimised. The system state of emission are analysed under different carbon prices. Finally we check the alignment of objectives in costs and emissions for the system. The results show that for a production system with economies of scale, the production allocation is transformed to a location choice problem after optimising the costs. Raising the carbon price reduces the carbon emissions but may not be able to induce the production to be placed in an emission efficient place. We propose a hybrid policy combining carbon price and free emission allowance to fully align the cost efficiency and emission efficiency and characterise the link between the emission target and the carbon price.

Keywords

Carbon emissions / Economic Order Quantity (EOQ) model / carbon price / emission allowance and location choice

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