Production and carbon emission reduction decisions for remanufacturing firms under carbon tax and take-back legislation

Abstract

In recent years, several countries and organizations have enforced carbon tax and take-back legislation on firms, to mitigate environmental impacts. Accordingly, responsible firms have implemented remanufacturing and carbon emission reduction (CER) strategies to reduce carbon emissions. We examine the impact of carbon tax and take-back legislation on the production and CER decisions of firms. We then characterize the optimal solutions in a monopolistic environment where an integrated manufacturer is responsible for remanufacturing used-of-life products as well as producing brand-new ones, and in a competitive environment where the original equipment manufacturer (OEM) faces competition from an independent remanufacturer (IR). Subsequently, we compare and analyze the effects of carbon tax and take-back legislation on consumers and the environment under different settings. The results indicate that (i) compared with the case without CER, the CER strategy makes the IR in a competitive environment more willing to remanufacture products than the integrated manufacturer in a monopolistic environment. Additionally, the CER strategy can always increase the consumer surplus under both settings if the same remanufacturing strategy is adopted, but it cannot always benefit the environment; (ii) a higher imposed target remanufacturing level hurts (benefits) consumers in a monopolistic (competitive) environment. Moreover, it has different impacts on the environmental benefits in different scenarios; (iii) the regulations, i.e. carbon tax and take-back legislation, may not motivate firms to direct increased effort toward CER. Finally, we discuss the important insights and managerial implications for policy-makers and firms.