Abstract: Carbon offset mechanism is an important supplementary regulation of carbon market. To study the impact of carbon offset mechanism on manufacturing/remanufacturing production decisions, two production decisions models are constructed respectively for emission-based and allowance-based carbon offsets mechanism. Through model solving and numerical analysis, the optimal decisions under the two models are compared to explore the impact of offset cap, and acceptance of remanufactured products on optimal production decisions. The results show that, the offset mechanism will increase the quantity of new products and reduce the quantity of remanufactured ones, and improve the firm's profit, consumer surplus and social welfare. Raising offset cap will strengthen this trend. However, an increase in the offset cap does not always reduce the cost of carbon emissions. This trend reverses when offset cap is too high. Optimal strategies are more sensitive to offset cap when the acceptance of remanufactured products is large. For government, a reasonable offset cap should be set to improve social welfare, although this may reduce the firm's profit. Manufacturers with high free allowance can earn more profit under allowance-based mechanism than that under emission-based mechanism, and vice versa.

Key words: carbon offsets mechanism, cap-and-trade regulation, manufacturing/remanufacturing, production decisions