Implication of take-back and carbon emission capacity regulations on remanufacturing in a competitive market

Abstract

As waste from consumer electronics sector grows steadily, manufacturers are facing take-back and carbon emission capacity regulations, which mandates them to properly treat the waste through remanufacturing and reduce carbon emissions. However, implications of the two regulations on remanufacturing activities and market competition remain unclear. We use a stylized model with a manufacturer facing competition from an independent remanufacturer and provide four legislative scenarios, i.e., no regulation, take-back regulation, carbon emission capacity regulation and dual regulation to study these questions. We characterize equilibrium strategies of the two firms under different legislative structures by using Karush-Kuhn-Tucker (KKT) conditions and examine the effects of two regulations on three key aspects: remanufacturing level, prices for new and remanufactured products as well as the manufacturer's profits. We find that an increase in the collection target or a decrease in the carbon emission cap actually may cause a drop in remanufacturing under single regulation, which means stringent regulation do not imply more remanufacturing. Intuitively, low carbon emission cap always increases the price of two products as it reduces the manufacturer's total production quantity. However, we find that the price for remanufactured products may decrease when remanufacturing strategy is an attractive alternative for the manufacturer under high collection targets. In addition, the manufacturer's profits may drop when carbon emission capacity regulation or dual regulation exists in the market. Finally, through a numerical study, we investigate the changes in firms' profits, environmental impact and social welfare under different legislative scenarios with high collection targets or low carbon emission caps.