Effects of carbon emission regulations on remanufacturing decisions with limited information of demand distribution

Abstract

Policy-makers are developing regulation policies to drive down carbon emissions from industries. Independent remanufacturers (IRs), which remanufacture recycled products/components/parts, must manage and evaluate economic costs generated by the production under future carbon emission regulations. We present three optimisation models to determine the remanufacturing quantity that maximises the total profits under three common carbon emission regulation policies: (a) mandatory carbon emissions capacity, (b) carbon tax and (c) cap and trade. These models include sales revenue, remanufacturing cost, disposal cost, inventory holding cost, shortage cost and carbon emission cost. The max–min approach is used to solve the models, which assume limited information on demand distribution. We investigate how the three regulation policies affect remanufacturing decision-making for IRs and we also solve some numerical examples where we vary the magnitudes of incentives, penalties and stringency of constraints to provide implications to policy-makers. The results indicate that remanufacturers should aim to improve yield rate to maximise the profit irrespective of the implemented carbon emissions policy. Policy-makers should prefer the carbon tax policy, if any of the other two policies must be performed, a remanufacturing discount such as a higher carbon emission cap or lower penalty should be implemented to better promote the development of remanufacturers.

Keywords:

• independent remanufacturers (IRs)
• remanufacturing decisions
• carbon emission policies
• limited distribution information

Acknowledgements

The authors are very thankful for constructive comments and suggestions from anonymous reviewers.

Additional information

Funding

Funding. This work was partly supported by the National Natural Science Foundation of China (NSFC), Research Fund [grant number 71271054], [grant number 70971022] and China Scholarship Council (CSC). This work was also partly supported by the Kolarctic Project, Barents Logistics 2; with complement financing from County Administrative Board of Norrbotten, Region Västerbotten and Luleå City.