More from the Author

• Working Paper | HBS Working Paper Series | 2013

  Sustainable Operations Management: An Enduring Stream, or Passing Fancy?

  David F. Drake and Stefan Spinler

  Paul Kleindorfer was among the first to weigh-in on and help nurture the stream of Sustainable Operations Management. The thoughts laid out here are based on conversations that we had with Paul relating to the foundational drivers underlying Sustainability as a management issue—population and per capita consumption growth; the limited nature of resources and sinks; and the responsibility and exposure of firms to ensuing ecological risks and costs. We then discuss what an Operations Management lens brings to the issue, briefly reviewing current and ongoing research in the field. This article relates to a presentation prepared by Paul and delivered by Morris Cohen for Paul's Manufacturing & Service Operations Management Distinguished Fellows Award given at Columbia University, June 18, 2012. We undertook the writing of this article at Paul's request.

  Keywords: Sustainable Operations; sustainability; environment; Paul Kleindorfer;

  Citation:

  Drake, David F., and Stefan Spinler. "Sustainable Operations Management: An Enduring Stream, or Passing Fancy?" Harvard Business School Working Paper, No. 13–084, March 2013.

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• Working Paper | HBS Working Paper Series | 2012

  Carbon Tariffs: Effects in Settings with Technology Choice and Foreign Comparative Advantage

  David F. Drake

  Carbon regulation is intended to reduce global emissions, but there is growing concern that such regulation may simply shift production to unregulated regions and increase global emissions in the process. Carbon tariffs have emerged as a possible mechanism to address these concerns by imposing carbon costs on imports at the regulated region's border. I show that, when firms choose from discrete production technologies and offshore producers hold a comparative cost advantage, carbon leakage can result despite the implementation of a carbon tariff. In such a setting, foreign firms adopt clean technology at a lower emissions price than firms operating in the regulated region, with foreign entry increasing only over emissions price intervals within which foreign firms hold this technology advantage. Further, domestic firms are shown to conditionally offshore production despite the implementation of a carbon tariff, adopting cleaner technology when they do so. As a consequence, when carbon leakage does occur under a carbon tariff, it conditionally decreases global emissions. Three sources of potential welfare improvement realized through carbon tariffs require both foreign comparative advantage and endogenous technology choice, underscoring the importance of considering both in value assessments of such a policy.

  Citation:

  Drake, David F. "Carbon Tariffs: Effects in Settings with Technology Choice and Foreign Comparative Advantage." Harvard Business School Working Paper, No. 13–021, August 2012.

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• Working Paper | HBS Working Paper Series | 2012

  Technology Choice and Capacity Portfolios Under Emissions Regulation

  David Drake, Paul R. Kleindorfer and Luk N. Van Wassenhove

  We study the impact of emissions tax and emissions cap-and-trade regulation on a firm's long-run technology choice and capacity decisions. We study the problem through a two-stage, stochastic model where the firm chooses capacities in two technologies in stage one, demand uncertainty resolves between stages (as does emissions price uncertainty under cap-and-trade), and then the firm chooses production quantities. As such, we bridge the discrete choice capacity literature in Operations Management (OM) with the emissions-related sustainability literature in OM and Economics. Among our results, we show that a firm's expected profits are greater under cap-and-trade than under an emissions tax due to the option value embedded in the firm's production decision, which contradicts popular arguments that the greater uncertainty under cap-and-trade will erode value. We also show that improvements to the emissions intensity of the "dirty" type can increase the emissions intensity of the firm's optimal capacity portfolio. Through a numerical experiment grounded in the cement industry, we find emissions to be less under cap-and-trade, with technology choice driving the vast majority of the difference.

  Keywords: Pollution and Pollutants; Governing Rules, Regulations, and Reforms; Technology; Production; Performance Capacity; Mathematical Methods;

  Citation:

  Drake, David, Paul R. Kleindorfer, and Luk N. Van Wassenhove. "Technology Choice and Capacity Portfolios Under Emissions Regulation." Harvard Business School Working Paper, No. 12–079, March 2012.

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