Abstract: For the uncertainty in the carbon emission permit price, a call option on carbon emission permit trading is introduced, and a manufacturer-led two-level supply chain game model is built, using Kuhn Tucker conditions to solve equations. The decisions are compared between the current purchase strategy and the option strategy in supply chain. The results show that the manufacturer purchases carbon emission permit only in the form of the option contract. The options purchase quantity of carbon emission permit is less impacted by the carbon emission permit price. When the carbon emission permit price is high enough, the manufacturer's profit under the option strategy is higher than that under the current purchase strategy, and the profit of the retailer and the supply chain are also increased. The option strategy is used by the manufacturer can improve the profit of supply chain enterprise when the options cost on carbon emission permit is lower than the threshold.

Key words: carbon emission permit, call option, Kuhn-Tucker condition