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

Recent studies on facility location highlight that increasing the carbon price can ensure meaningful reductions in transport-related greenhouse gas emissions (GHGs). In this paper, we propose to revisit the Production–Location Problem considering transport-related carbon emission mitigation due to carbon taxation and production technologies that allow complementarity or substitution among input quantities. We first show that cost-minimizing location may differ from carbon emission minimizing location, regardless of the production technology type. We also find that gradual changes in carbon tax affect the relative delivered prices of inputs such that the firm has an incentive to relocate its facility and substitute among input quantities, leading to new shipping patterns that do not necessarily cause a lower pollution.