Carbon tax and low-carbon credit: Which policy is more beneficial to the capital-constrained manufacturer's remanufacturing activities?

Abstract

Remanufacturing has attracted much attention for its enormous potential in resource recycling and low-carbon emission reduction. To investigate the effects of different government intervention policies on remanufacturing and carbon emissions, two profit maximization models of the capital-constrained manufacturer under carbon tax and low-carbon credit policies are constructed respectively. Then, through theoretical and numerical analyses, some significant findings are drawn: (1) Both carbon tax and low-carbon credit policies can encourage capital-constrained manufacturers to produce more remanufactured products, but which intervention policy is more advantageous also depends on the carbon emission cost of new products or financing cost of the remanufactured products. (2) Although carbon tax policy can effectively control carbon emissions, it is always at the expense of both capital-constrained manufacturers and consumers; while low-carbon credit policy can help capital-constrained manufacturers achieve the goal of win-win economic and environmental benefits when the remanufacturing carbon savings advantages are more apparent. (3) From the perspective of consumer benefits, carbon tax is more advantageous when the consumer willingness to pay for remanufactured products is higher; otherwise, low-carbon credit policy should be implemented. (4) The higher the environmental damage coefficient is, the more it can highlight the advantages of the two intervention policies in social welfare enhancement, especially the carbon tax policy; and when the environmental damage coefficient is given, the stronger the consumers’ willingness to pay for remanufactured products is, the more it is conducive to reducing the negative effects caused by the carbon tax or low-carbon credit policy in social welfare enhancement, or increasing the corresponding positive effects. Based on above findings, some managerial insights and policy implications are provided to capital-constrained manufacturers and policy-makers.