Unleashing the Power of Closed-Loop Supply Chains: A Stackelberg Game Analysis of Rare Earth Resources Recycling

Abstract

Due to the rapid development of the clean energy sector against the global backdrop of carbon emission reduction, the availability of rare earths is becoming scarce. The strategic recycling of rare earth resources serves the dual purpose of alleviating supply shortages and aligning with the global quest for carbon reduction and environmental preservation. This study establishes a second-level, closed-loop supply chain that includes a rare earth group (REG) that synergizes rare earth mining and smelting companies with rare earth material manufacturing companies, as well as a specialized rare earth recycler. The study considers three different recycling scenarios: the recycler only recycles oil sludge scrap (S1), the recycler only recycles end-of-life products (S2), and the recycler both recycles oil sludge scrap and end-of-life products (S3). In addition, the study examines the impact of government subsidies, carbon trading mechanisms, and corporate research and development (R&D) initiatives on closed-loop supply chains. The findings are summarized below. (1) Rare earth recycling does not impact the rare earth market downstream. (2) The profits of both REG and the recycler have a positive correlation with the quantity of recycling. However, recycling sludge waste can generate higher revenues for the recycler compared to recycling end-of-life products. (3) Government subsidies exert a positive effect on the recycler’s profits and the production of secondary rare earths. However, the REG redirects a segment of the recycler’s profits in its direction. Elevated carbon trading prices encroach upon the REG’s profitability, prompting increased procurement of secondary supply rare earths. (4) The benefits of increasing rare earth recycling rates outweigh government subsidies and carbon trading valuations in the supply chain. Therefore, enterprise-focused research and development initiatives play a critical role in improving the efficiency of the closed-loop rare earth supply chain.