Emission reduction and outsourcing remanufacturing: A comparative study under carbon trading

While we know that outsourcing remanufacturing is pivotal to resource recycling, its effectiveness in facilitating carbon emission reduction has scarcely been investigated. Likewise, manufacturers’ emission reduction investments have been widely documented as a vital antecedent of outsourcing remanufacturing. Against this backdrop, our ambition is to investigate how emission reduction approaches affect outsourcing remanufacturing under carbon trading. In particular, the present study focuses on three emission reduction models: independent emission reduction by the original equipment manufacturer (OEM), independent emission reduction by the authorized remanufacturer (AR), and joint emission reduction by both. Further, under carbon trading, we provide optimal choices for both the OEM and the AR in reducing carbon emissions. Our findings can be divided into five parts. 1) Compared to a non-emission reduction approach, if emission reduction levels are below a certain threshold, investing in emission reduction simultaneously enhances the profits of OEMs and ARs in all three emission reduction models; in some instances, however, the emission reduction investments are also beneficial for reducing the retail prices of products and increasing total sales along the supply chain, thus contributing to the increase of the consumer surplus. 2) Emission reduction investments do not always contribute to decreasing the environmental impact of new and remanufactured products, and their environmental impact is related to their own output and unit carbon emissions. There is an optimal emission reduction level that makes the three emission reduction models do the least harm to the environment. 3) Regardless of whether or not an OEM or an AR engages in emission reduction, the other parties’ optimal choice in the supply chain is to reduce emissions. Relative to independent emission reduction approaches, the joint emission reduction model facilitates the maximum total sales of supply chains; more importantly, it is conducive to reducing environmental impact and increasing the social surplus. 4) Emission reduction investments reduce the outsourcing costs of per unit remanufactured products, and outsourcing costs are negatively related to the emission reduction level of OEMs and ARs. 5) Based on the bargaining power of OEMs and ARs, there is an optimal Nash bargaining solution that meets the requirements of optimal strategies.