David F. Drake
Assistant Professor of Business Administration
David Drake is an assistant professor in the Technology and Operations Management (TOM) Unit at Harvard Business School and an emerging authority in sustainable operations management. Through his research, Professor Drake studies firms’ environmental and social performance. In his work related to environmental operations, he pays particular focus to industry’s role in combating climate change, exploring how emissions regulation influences the capacity portfolios that firms invest in; how such regulation, when unilaterally imposed, impacts technology choice, offshoring, and regional competitiveness; and how creative collaboration can improve the economic feasibility of clean technology development and adoption. Professor Drake’s work in socially responsible operations explores the design and implementation of innovative business models that improve quality of life in areas of extreme poverty through the products and services offered, the resources preserved, and the opportunities for economic gain created. Professor Drake has published his research in the field’s premier journals and authored pedagogical cases used to teach concepts at the intersection of sustainability, operations strategy, and supply chain management to students and executives worldwide.
Professor Drake has taught the TOM course in the MBA required curriculum and currently teaches an elective course in operations strategy. Through his research, Professor Drake has worked closely with a number of firms experiencing emission regulation under the EU-ETS, and attended the Copenhagen Climate Change Conference (UN COP15) as a delegate. Professor Drake spent five years at Random House where he led the publishing operations projects and the production purchasing groups. He earned his MBA from Vanderbilt University’s Owen Graduate School of Management, and his MSc and PhD in management from INSEAD.
Are carbon tariffs protectionism or climate policy?
Some argue that carbon tariffs — carbon costs imposed on imports entering an emission-regulated region — are simply protectionism being peddled as climate policy. Our results suggest otherwise. The implementation of a carbon tariff decreases global emissions relative to equivalent settings without a carbon tariff. Domestic firm profits, on the other hand, can increase, decrease, or remain unchanged due to a carbon tariff. In short, the principal benefit gained through a carbon tariff is not the protection of domestic firms’ profits. Rather, it is an improvement in emissions regulation efficacy, with carbon tariffs enabling emissions regulation to deliver reduced global emissions in many settings in which it would otherwise fail to do so.
Cap-and-trade versus carbon tax: which should firms prefer?
Conventional wisdom suggests that the uncertainty in emissions price under cap-and-trade regulation erodes value when compared to the constant price under a carbon tax. We show otherwise — emissions price uncertainty under cap-and-trade results in greater expected profit. Two operational drivers underlie this result: i) firms can choose not to operate if emissions price makes doing so unprofitable; and ii) firms with multiple technologies in their portfolio choose the order in which to use those technologies, which increases expected profits relative to a setting with a fixed emissions price. To the extent that they weigh-in on the matter, firms should back cap-and-trade policies over those proposing an emissions tax.
Why do firms respond to environmental regulation the way that they do?
A regulator’s ability to incentivize environmental improvement among firms is a vital lever in achieving long-term sustainability. How a firm will respond to such regulation depends, in part, on the expected cost of noncompliance, which is a product of the stated penalty, the likelihood that non-compliant practices are detected, and the likelihood that detected violations are punished. In this chapter, through examples of regulatory failures and successes, we develop a framework for understanding how the expected cost of non-compliance interacts with the relative magnitude of three important thresholds to determine whether profit-maximizing firms ignore, avoid, or embrace environmental regulation.