Why industrial location matters in a low-carbon economy

Abstract

Reductions in freight transportation costs have favoured agglomeration and radically decreased the requirement for production activities to take place adjacent to natural resources. As the world transitions towards a low carbon economy, with energy generated from renewable sources, this could change. The cost of transporting renewable energy is relatively high. This creates a significant competitive advantage for regions which can combine surplus clean energy resources with strong institutions and developed capital markets. My findings show renewable energy is both heterogeneously distributed, and its transport costs significantly alter the price of undertaking industrial activities in locations without surplus renewable energy generation capacity. This has major implications for the organisation of global value chains and suggests that future models of industrial location would benefit from incorporating this dynamic.