Economic and environmental implications of the interfirm waste utilisation

Considering the mismatch in the supply of and demand for the industrial process wastes, we investigate when the interfirm waste utilisation can be both economically and environmentally superior to the no waste utilisation. The Nash bargaining approach is employed to resolve the incentive misalignment problem. Our analysis suggests that the conversion strategy changes from over-conversion, to full conversion, and then to partial conversion with increasing waste trading price. Furthermore, an increase in the waste disposal fee contributes to the diversion of wastes from the landfill but may result in worse environmental consequences especially for wastes with a slight reduction in the production impact compared to raw materials. This implies that policy makers should charge the waste disposal fee based on waste types and focus on increasing that for wastes with higher disposal and lower production impacts. Finally, at the lower waste trading price, the interfirm waste utilisation is always a win-win strategy. While at the higher waste trading price, it is a win-win strategy for products with a substantial reduction in the production impact when producing with wastes. Otherwise, it is a win-win strategy for products with a lower production impact relative to the raw material usage and waste disposal impacts.