Optimal Decisions for Medical Equipment Remanufacturing Under Carbon Price Fluctuation With Carbon Options

Abstract

This study examines the effects of carbon options in hedging against the risk of carbon price fluctuation in a remanufacturing setting. Specifically, we develop an optimization model for a medical equipment enterprise that produces new products in the first period, and in the second period manufactures both new and remanufactured ones under a cap-and-trade mechanism. Since the carbon price is uncertain, carbon options are introduced for the enterprise to trade for carbon credits. We first study the scenario where carbon options are excluding as a benchmark, and then investigate the carbon options scenario. We show that for a given carbon emission reduction rate, the introduction of carbon options can decrease the remanufactured quantity in comparison to the case without carbon options. Additionally, the carbon emission reduction strategy of the enterprise can lower the optimal selling prices of the two products over these two periods. When the carbon emission reduction rate is given, our numerical analysis shows that introducing carbon options can enhance the overall consumer surplus over the two periods, but the first-period consumer surplus remains unchanged. After introducing carbon options, with the increased volatility in the carbon price, the optimal emission abatement rate decreases, while the total profits, consumer surplus, and environmental impact over the two periods increase and are higher than those in the scenario without carbon options.

Keywords

• Cap-and-trade regulation
• carbon options
• carbon price fluctuation
• medical equipment remanufacturing