Managing New and Remanufactured Products to Mitigate Environmental Damage under Emissions Regulation

Emissions of greenhouse gases are not as free as they used to be. Under stringent regulations, manufacturers increasingly find that their emissions have a steep monetary, environmental and social price. In manufacturing industry, remanufacturing has an important role to play with its inherent economic, environmental and social opportunities which warrant regulatory action. In this paper, we characterize the optimal emissions taxation policy in order for remanufacturing to deliver those benefits. In particular, using a leader-follower Stackelberg game model, we investigate the impact of emissions taxes on the optimal production and pricing decisions of a manufacturer who could remanufacture its own product. We characterize whether/under what conditions the manufacturer's decision to remanufacture under emissions regulation reduces its environmental impact (as measured by total greenhouse emissions), whilst increasing its profits (a win-win situation). On the policy side, we delineate how emissions taxes can be instituted to realize the inherent economic, environmental and social benefits of remanufacturing (the triple win of remanufacturing). Two critical components of this analysis are the issue of demand cannibalization from the remanufactured product and the low-emission advantage of remanufacturing. We further investigate the impact of remanufacturing- and society-related factors on the balance among firm-level profits, environmental impact and social welfare, where the collection rate of end-of-use products and the cost to the environment turn out to be decisive in deriving the triple win benefits from remanufacturing. Last, we extend our analyses to an emissions trading setting where emissions are regulated using tradeable permits, and investigate the economic implications of remanufacturing under emissions trading vis-á-vis emissions taxation.