Trade-in for carbon emission reduction under tax regulation

Carbon emission reduction (CER) is urgent and necessary across various industries. While considerable attention has been paid to carbon emissions during manufacturing processes, less focus has been given to the end-of-life stage when a product is scrapped. The scrapping of end-of-life products significantly impacts CER, especially for rapidly upgraded products such as computers, communication devices, and consumer electronics. To better understand the effects of carbon emissions from end-of-life products, we study a closed-loop supply chain (CLSC) with a trade-in program and a carbon tax applied to the carbon emissions (CE) during a product’s production and scrapping stages. We employ a Stackelberg game to investigate the equilibrium decisions of a manufacturer, a retailer, and a regulator, in the presence of environmentally-conscious consumers. We examine the interaction between the CE in the scrapping stage and the trade-in program. The trade-in program can reduce the price sensitivity of environmentally-conscious consumers. Additionally, the trade-in program will decrease both the manufacturer’s and the retailer’s prices. Furthermore, we determine the optimal carbon tax imposed by the regulator, which is specific to the product’s characteristics and environmental conditions. In addition, we compare our CLSC with a centralized system and a system with third-party collection in terms of social welfare under a given carbon tax.