Contractual Mechanisms for Coordinating a Sustainable Supply Chain With Carbon Emission Reduction

ABSTRACT This article examines the significance of reducing carbon emissions in a sustainable supply chain (SSC) through carbon trading price. It delves into how contracts coordinate supply chains amid market demand uncertainty by focusing on a model in which demand fluctuates based on pricing and sustainability factors. The study highlights conflicts arising from different profit motives within the supply chain and suggests using synchronization mechanisms based on contracts. Three types of contracts—two‐part tariff, revenue sharing, and quantity flexibility—are analyzed for their impact on supply chain coordination and profitability. The study concludes that two‐part tariff contract can enhance coordination and profit distribution within the chain, while revenue sharing may benefit producers more but reduce retailer profitability. Moreover, while quantity flexibility may be less effective in synchronizing the chain, it can still boost profitability.