Optimising coordination mechanisms for a sustainable ethanol-blended fuel supply chain in India's transportation sector

This study examines supply chain coordination mechanisms in India's Ethanol Blended Petrol (EBP) Program, integrating petrol and ethanol producers to meet transportation fuel demand while addressing environmental, energy security, and sustainability goals. Using a Stackelberg game model with Karush–Kuhn–Tucker (KKT) conditions, we analyse the effects of centralised versus decentralised decision-making on optimising coordination under regulatory constraints. We explore two mechanisms – Revenue Sharing (RS) and Cost Allocation (CA) – to assess their impact on profitability, carbon emission reduction, and consumer demand. Findings reveal that Centralized Decision-Making (CDM) achieves lower retail prices and higher emission reductions, while Decentralized Decision-Making (DDM) results in higher prices and lower reductions due to lack of coordination and information asymmetry, further analysed using a Bayesian Stackelberg signalling game. RS and CA effectively optimise coordination by aligning incentives, balancing costs, and improving environmental outcomes. Sensitivity analysis highlights the roles of carbon reduction coefficients, consumer preferences, and government policies (taxes and subsidies) in shaping EBP's viability. We provide a strategic framework for policymakers to design regulatory interventions, refine subsidies, and implement effective mechanisms that promote sustainable fuel adoption, stabilise prices, and embed environmental sustainability into operational decisions, supporting India's transition to a cleaner and more resilient transportation sector.