Optimal production and emission reduction policies for a remanufacturing firm considering deferred payment strategy

Carbon emission reduction is regarded as an effective way to protect the environment, which requires a large amount of capital. Thus, for a remanufacturing firm with limited initial capital, trade credits act as an effective financing method in supporting production and emission reductions. In this study, under the cap-and-trade and government's subsidy policies, a joint decision on recycling, remanufacturing and emission reduction by a financially constrained remanufacturer with considering deferred payment to a third-party recycler is analyzed. On the basis, optimization models are established to derive the optimal recycling quantity, carbon reduction rate and government subsidy rate by using a backward induction. Furthermore, an analytical comparison is provided between the cases of base model, carbon abatement investment model and deferred payment model. Numerical experiment results indicate that the remanufacturer can always make use of the investment option to further decrease its carbon emissions and gain more profit. We also find that deferred payment can effectively mitigate carbon emissions only when the degree of emission efforts is more than a certain critical value, and it also plays a positive role in the third-party recycler's revenue, especially for the case with higher initial capital. Some other managerial implications are further discussed.