Closing the loop in supply chains: Economic and environmental effects

•Economic and environmental effects of closing the loop in SC’s are investigated.•Demand, return rate and returned product quality uncertainties are considered.•Carbon cap, carbon cap-and-trade and carbon tax policies are considered.•We observe that closing the loop in SC’s does not always bring cost reduction.•Benefit of closing the loop may increase under low carbon caps. Over the past years, companies started to close the loop in their supply chains to comply with the regulations and increase the sustainability of their systems. In this study, we focus on the economic and environmental effects of closing the loop in supply chains in terms of total supply chain cost and carbon emission. We consider demand, return rate and returned product quality uncertainties simultaneously and propose a set of two-stage stochastic programming models for both forward and closed-loop supply chains to compare the optimal supply chain costs, supply chain emissions and model decisions with each other. We make various sensitivity analyses to see the effects of parameters. We also study three well-known and widely-used emission policies; carbon cap, carbon cap-and-trade and carbon tax together with the case of no emission regulation and compare the forward and closed-loop supply chains under these policies. Computational results allow us to obtain important insights regarding the percentage cost difference and emission difference between forward and closed-loop supply chains in different problem settings.