The role of carbon tax in the transition from a linear economy to a circular economy business model in manufacturing

Abstract

In recent years, the need to adopt Circular Economy (CE) business models has become increasingly evident. Nevertheless, the adoption of CE business models remains low, with companies continuing to use Linear Economy (LE) models. However, this may change with recent governmental measures: governments are increasingly implementing regulations and policies to reduce CO 2,eq emissions, potentially encouraging firms to shift from LE to CE business models. Among the various regulations and policies, carbon taxes are prominent due to their effectiveness in reducing CO 2,eq emissions. The adoption of carbon taxes could incentivize companies to prefer CE business models over LE, as CE would reduce CO 2,eq emissions and, consequently, the taxes to be paid. The literature, however, has overlooked this aspect. No study has yet investigated the role of carbon tax and its influence on the choice between LE and CE business models in manufacturing organizations. This study aims to fill this gap by investigating the role of carbon tax in the choice between LE and CE and in the transition from the former to the latter. An integrated methodological framework was adopted, employing various methodologies, including simulation factorial experiments, sensitivity analyses, and decision tree algorithms. The results indicate that the current carbon tax values are too low to impact the transition from LE to CE. To support governmental bodies in determining the minimum carbon tax value needed to influence the business model decision-making process, carbon tax level curves were developed. The findings reveal that there is no single preferable minimum carbon tax value; instead, this minimum value depends on product characteristics in terms of costs and CO 2,eq emissions. • Carbon taxes do not directly drive the shift to a circular economy. • Carbon tax values adjust the balance of environmental and economic factors. • Carbon tax level curves indicate when environmental factors gain significance. • Higher carbon tax values lead to greater CO 2 savings and decreased economic savings. • Decision trees are constructed for various carbon tax regimes.

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