Technology improvements under carbon emissions taxes

Abstract

In this thesis, we consider two technology improvement problems under carbon taxation policies. In the first one, a manufacturer subjected to a carbon tax producing a single product using multiple inputs and employing an initial technology level, which is modeled using the Cobb Douglas production function. We find out that 1) when the output and the technology level are binding, amount of a production input is increasing in carbon tax if the share of the tax due to its carbon footprint in its total variable cost is less than the weighted average of that of all production inputs; 2) when the output is binding, but the technology level is non-binding, while the technology level is always increasing in carbon tax; amount of an input is increasing in carbon tax only if the share of the tax times its carbon footprint in its total variable cost is less than the weighted average of that of all production factors (including technology level); 3) when the output is non-binding, but the technology level is binding, the output, as well as the inputs, is decreasing in carbon tax, at optimality; 4) when the output and the technology level are non-binding, all of the decision variables are decreasing in carbon tax, at optimality. In the second problem, we consider setup reduction activities for a stochastic inventory system, where improvement efforts are modeled via production functions. We derive the optimality quantities of required labor and capital input for improvement, as well as the ordering quantity and reorder point.