Remanufacturing subsidy or carbon regulation? An alternative toward sustainable production

Abstract

<p>Remanufacturing has attracted much attention in recent years because of its potential to achieve sustainable production. Due to low consumer acceptance, however, the market size of remanufactured products remains small. There are different ways to promote remanufacturing, two of which being providing cash subsidy and imposing carbon regulation. Cash subsidy demonstrates the direct role of governments in promoting consumption of specific products, whereas carbon regulation indirectly promotes the manufacture of low-emission products through mandatory measures. In this paper, we study how these two intervention policies affect the demand for remanufactured products, firm profit and social welfare, taking total carbon emissions into consideration. We model a monopoly firm that sells both new and remanufactured products to capture the economic and environmental impacts of these policies. By comparing the two policies, we derive the closed form of regions or intervals that indicate which policy incurs higher remanufacturing output or lower total emission. Important findings obtained include: (1) The two policies may have different impacts on recycling economy e remanufacturing subsidy increases the consumption of remanufactured products, and this indicates that more obsolete products are collected and remanufactured" whereas carbon regulation only works when the remanufacturing acceptance level is high enough or when the unit carbon emission of remanufactured products is low enough. (2) Remanufacturing subsidy promotes profit, however, carbon regulation might hurt the firm's profit. On consumer surplus and social welfare, both policies show uncertain trends. (3) On the total carbon emission, a mandatory carbon tax can help to decrease it. However, remanufacturing subsidy works only when the remanufacturing acceptance level is high enough or when the unit carbon emission of new products is large enough.</p>