Assessing the economic performance of an environmental sustainable supply chain in reducing environmental externalities

•We evaluate environmental economic performance of environmentally friendly product in the context of supply chain.•We develop a supply chain model incorporating environmental policies with multiple environmental sustainable constraints.•Stakeholders’ Environmental interests are reflected by constructing environmental sustainable constraints.•We investigate interrelation among supply chain firms, government and consumers in reducing environmental externalities.•The government policy incentives for sustainable supply chain to be cost competitive is quantitatively assessed.

This study investigates the mechanism that motivates supply chain firms to reduce environmental externalities while balancing the economic feasibility of the supply chain system under environmentally constrained circumstances in a competitive market. Taking government policy incentives into account, a quantitative model of an integrated supply chain that incorporates sustainable constraints is formulated to optimize supply chain firms’ operational strategies of producing environmental friendly products (EFPs). This study contributes to the literature with a better understanding the interplay and interrelation of multiple sustainable constraints and their impact on supply chain firms’ collaborative decisions. Our findings suggest that the decisions of operating EFPs are subject to sustainable constraints and that the government policy incentives play a dominant role overseeing supply chain firms’ environmental behaviors toward sustainability.