Abstract: As an effective cooperative mode of enhancing carbon emission reduction, the participation of energy-saving service companies (ESCO) in supply chain emission reduction has been concerned in recent years. However, the existing literatures have not analyzed the conditions for supply chain to cooperate with ESCO in emission reduction, andthe impact onemission reduction rate and profits in the supply chain involving ESCO. The strategy of cooperative emission reduction in the supply chain ESCO under the carbon trading policy is investingated on. Three game models are established in the case of decentralized decision-making, centralized decision making among upstream and downstream enterprises and involving ESCO cooperation with the supply chain. Through the comparative analysis of the profit and emission reduction effect, the conditions and the profit sharing ratio of ESCO to participate in supply chain emission reduction are obtained. The results indicate that, when the ratio of the investment coefficient of emission reduction in supply chain to that of ESCO reached to a certain threshold value, the optimal decision-making of the supply chain is to cooperate with ESCO. According to the total profit and emission reduction rate of supply chain, the three cases are sorted as that, the first is cooperating with the ESCO, and the next is centralized decision making, the last is decentralized decision-making. When cooperating with ESCO, the emission reduction rate of supply chain has a reverse relation with the profit sharing ratio.Moreover, numerical simulations are conducted to further verify the above results. The theoretical support could be provided for the necessity and effectiveness of energy-saving service companies participating in supply chain emission reduction in practice.

Key words: cooperative emission reduction, supply chain, energy-saving service companies, carbon trading, game theory