Recycling strategies under carbon policies with platform financing

Given governmental regulations and environmental repercussions associated with apparel manufacturing and disposal, many manufacturers engage in recycling. Typically, manufacturers either recycle directly from consumers or through retail platforms. However, retail platforms often encounter financial constraints when developing recycling businesses. A key challenge in reverse logistics lies in the efficient and cost-effective collection and processing of used apparel, particularly given the complexities of governmental regulations and financial constraints. Against this backdrop, we develop an apparel closed-loop supply chain model to examine recycling strategies under different carbon policies (e.g., carbon emission reduction subsidies and carbon tax policies) and a hybrid financing scheme that incorporates both equity financing and bank loans. Our key findings are as follows. Firstly, from the perspective of the economic benefits of the supply chain entities, carbon subsidies provide stronger incentives for manufacturers and platforms to recycle more effectively than carbon tax policies. Secondly, in situations where the initial market demand for new products is low and the equity financing ratio is high, firms are inclined to set higher retail and wholesale prices. Thirdly, higher equity financing ratios prompt manufacturers to offer greater recycling incentive prices. Finally, we derive the optimal choice between the government’s carbon emission reduction subsidy and carbon tax policy, and discuss the most effective clothing recycling strategies for manufacturers and retail platforms. In the extended model, we investigate the optimal recycling strategy in the case of equity financing failures.