Carbon tax or cap-and-trade: Which is more viable for Chinese remanufacturing industry?

The debate between cap-and-trade and carbon tax, two major carbon emission reduction mechanisms to deal with global warming, has been going on for years unsettled. The strategy to implement one of them or both is by far mainly addressed at the national level, and there is a need to customize the policy-making for different sectors, especially the emerging remanufacturing industry that has the great potential to reduce material and energy consumptions. Based on a closed-loop supply chain model, this study analyzes the tradeoffs between carbon tax and cap-and-trade with a series of numerical studies. While keeping carbon emissions under control, cap-and-trade demonstrates a better fit to remanufacturing: its performances on manufacturer profit, social welfare, and consumer surplus surpass carbon tax’ in nine, eight, and six out of nine groups respectively. Only when the carbon quota level is too high, the cap-and-trade is possible to lose. In addition, this study examines two government-to-enterprise-subsidy strategies, direct subsidy and policy bias, and find both helpful but almost no difference in their impacts. The findings yield useful insights into the industry-wise design of carbon emission reduction mechanisms for remanufacturing and similar sectors.