How supply chain enterprises achieve coordination between green transition and profitability under the carbon trading framework.

With the increasing pressures of global climate change, businesses are being forced to find a balance between achieving a green transition and maintaining economic efficiency. However, the asymmetry between the risks and benefits of green investments makes companies in the supply chain face difficult choices in the transition process. Although existing literature has explored the regulating role of the carbon trading market mechanism, insufficient attention has been paid to the potential risks associated with carbon price volatility, and it is not clear how the differences in green investment efforts between upstream and downstream firms in the supply chain affect the investment decisions of firms in green transformation. Therefore, this paper quantifies the risk of carbon price fluctuation based on the statistical data of China's carbon trading market, and adopts prospect theory to portray the investment risk preference of enterprises, and applies the evolutionary game model to analyse the dynamic evolution process of the two-level sustainable supply chain system. The impacts of enterprises' free-rider returns, risk preferences, and government reward and punishment mechanisms on their strategic choices under different combinations of green effort levels are investigated. The results show that the government's regulatory behaviour plays an important role in promoting collaborative emission reduction among upstream and downstream enterprises in the supply chain, especially the regulation of supplier enterprises can significantly enhance the overall cooperation of the supply chain. Manufacturers with higher risk appetite are more inclined to promote green technology innovation, while suppliers are more sensitive to government penalties in most scenarios. In addition, in some scenarios, the regulation mechanism of the carbon market can induce upstream and downstream enterprises in the supply chain to spontaneously carry out green transformation and realize win-win cooperation. This study provides suggestions for the government to optimize incentive policies in the context of carbon market regulation, and provides theoretical references for firms to formulate sustainable development strategies in response to carbon trading fluctuations.