Impact of carbon quota allocation on equipment recycling by service-oriented manufacturers: The design of a coordination mechanism

Abstract

Service-oriented manufacturing is an emerging approach in green manufacturing that involves recycling equipment by collecting, repairing, and returning it to the market after the lease period. This approach is cost-effective and environment-friendly, making it a popular choice among manufacturers. However, while various business models for service-oriented manufacturers have been investigated, less attention has been paid to optimal decisions and contracts to improve the efficiency of the service-oriented manufacturing supply chain under carbon quota allocation policies. For this reason, this study builds a game model, which consists of a service-oriented manufacturer and an operator in two cases, i.e., with or without carbon quota allocation. Our main findings are threefold. First, carbon quota allocation policies can raise the production costs entailed by operators, thereby increasing their threshold to voluntarily undertake equipment maintenance. Second, when the carbon trading price meets certain conditions, the operator's profits increase with the price and are greater than those of the non-carbon-quota policy model. The change in carbon trading price has no direct effect on service-oriented manufacturers, but indirectly affecting their profits. In other words, these profits decrease with carbon trading price. Third, the revenue-sharing contract is more effective in minimizing equipment failures and more environment-friendly when the service-oriented manufacturer's equipment failures are influenced by a range of factors.