Where and how much manufacturing capacity should a multi-national firm build, given uncertain regional demands and uncertain transportation and production costs? Where and how should the firm invest in energy efficiency and plant-level renewable energy generation? How do various alternative forms of climate and energy policy influence these decisions?
Motivated by these questions, our research extends the literature on facility location and sizing to address uncertainty in production and transportation costs, as well as investment in energy efficiency and renewable energy. We employ mathematical theories of stochastic dominance, monotone comparative statics, and optimization under uncertainty to derive insights for managers and policy makers.
The potential to influence greenhouse gas emissions through manufacturing facility location and design is enormous. Manufacturing accounts for more than 30% of global greenhouse gas emissions and transportation of manufactured goods contributes nearly 10% of global CO2 emissions. The economic costs and greenhouse gas intensity of manufacturing differ greatly around the world, and will become increasingly heterogeneous as different regions adopt different forms of climate change policy. Concentration of manufacturing in unregulated regions could substantially increase emissions from manufacturing and transportation. Optimal facility location and design is particularly important in the nascent supply chains for energy-efficient building materials and renewable energy, due to the potential for hundreds of billions of dollars of investment in manufacturing capacity over the next decade.