The Impact of Legal Recycling Constraints and Carbon Trading Mechanisms on Decision Making in Closed-Loop Supply Chain

Abstract

To investigate how legal constraints on the recycling rate of used products and carbon trading mechanisms affect the profits and other decisions of supply chain system members, this paper develops and solves a two-cycle game model in which the manufacturer dominates while the retailer takes a secondary position; the manufacturer produces only non-low-carbon new products in the first cycle and both new and low-carbon remanufactured products in the second cycle. Simultaneously, the effects of parameters such as recovery rate, unit carbon trading price, and carbon emission reduction factor on the decision making of members of the supply chain system are also discussed. Finally, the conclusions are verified by numerical analysis: (1) When carbon reduction is low, the manufacturer will choose the highest recycling rate to obtain the highest profit, and when carbon reduction is high, manufacturers tend to choose not to recycle when the minimum recycling rate bound by law harms the interests of manufacturers. (2) Under the implementation of the carbon trading mechanism, the unit carbon trading price affects the profits of the members of the supply chain system depending on the size of the carbon emission reduction, and the two are negatively correlated at lower carbon emission reductions and positively correlated at higher carbon emission reductions. (3) From the perspective of supply chain system members’ interests, legal constraints and the existence of carbon trading mechanisms are not always conducive to increasing the margins of members of the supply chain system, both relevant to the size of carbon emission reductions. (4) From the perspective of environmental benefits, supply chain members do not need to pay economic costs in all cases to contribute to environmental benefits, and the existence of minimum recycling rate constraints and carbon trading mechanisms are conducive to achieving carbon reduction targets.