Integrating ESG into Remanufacturing: Third-party Model Selection Aligned With Consumer Eco-consciousness Under the Carbon Cap-and-Trade Policy

Abstract

As global efforts to reduce carbon emissions intensify, manufacturers face increasing pressure to integrate environmental sustainability into their supply chain strategies. Carbon cap-and-trade policies have become an important market-based mechanism for reducing emissions while creating economic incentives for sustainable production. Unlike existing studies that primarily examine remanufacturing operations or carbon policies separately, this study develops an ESG-oriented closed-loop supply chain model to investigate how manufacturers choose between outsourcing and authorization third-party remanufacturing (3PR) models under carbon cap-and-trade regulation and heterogeneous consumer green preferences. The model jointly captures the strategic interactions among manufacturers, third-party remanufacturers, consumers, and the government, providing a comprehensive framework for sustainable remanufacturing decisions. The results generate several important insights. First, the authorization model leads to higher remanufactured product prices and recycling rates but lower demand for remanufactured products than the outsourcing model. Second, stronger consumer green preferences increase the profitability of both manufacturers and 3PRs, but they affect the two parties’ preferred remanufacturing models differently: manufacturers increasingly favor authorization, whereas 3PRs prefer outsourcing. Third, carbon cap-and-trade policies significantly reshape model selection. Preference alignment between manufacturers and 3PRs occurs only under sufficiently asymmetric carbon quotas, while intermediate quota allocations create strategic conflicts, highlighting the importance of policy design. Finally, although manufacturers may benefit more from authorization under strong consumer green preferences, the outsourcing model consistently generates higher social welfare, suggesting a potential divergence between private incentives and societal objectives. These findings provide actionable insights for firms seeking to integrate ESG strategies into remanufacturing decisions and for policymakers designing carbon-quota trading schemes that balance corporate incentives, environmental sustainability, and social welfare.