How to arrange production and carbon emissions reduction? Thoughts towards remanufacturing authorization, risk aversion and carbon cap-and-trade

Abstract

Remanufacturing can reduce carbon emissions and yield economic benefits, which is often carried out by an independent remanufacturer (IR) rather than the original equipment manufacturer (OEM). Moreover, OEM applies remanufacturing authorization to compete and cooperate with IR. However, the IR's risk aversion, which arises from the uncertainty of the remanufacturing market, posing challenges to supply chain. Considering remanufacturing authorization strategies and risk-aversion, we apply the Cournot game to study the decisions of an OEM and a risk-averse IR under the carbon cap-and-trade (CCT) policy. Furthermore, the impact of consumers' willingness to pay (WTP) for remanufactured product is discussed. We find that the IR's risk aversion negatively impacts the choice of the remanufacturing strategy. And low risk aversion can strengthen the positive effect of consumers' WTP for remanufactured product on the IR and environment, while weakening the negative impact on the OEM. In addition, compared with the IR's carbon emissions reduction (CER) cost coefficient and carbon price, the impact of risk aversion is more significant. Moreover, the increase in competition intensity has a negative impact on the OEM and IR, and this effect cannot be offset by changes in carbon price and consumers' low carbon preference. From the perspectives of society and consumers, fixed remanufacturing authorization is superior to unit remanufacturing authorization. Compared with the policy without CCT, CCT policy imposes restrictions on the OEM's production and profitability, but is beneficial to the IR's development and environmental protection.