<p>Recently, due to huge competitiveness in the market, it has become necessary for every supplier to understand the importance of an adequate quantity of inventory to be purchased to meet the demand. Substitution of items with similar ones ensures the fulfillment of demand and growth in business. Moreover, environmental issues such as carbon emissions and greenhouse gases are major concerns in today’s world. Reserving and controlling inventory in the market results in carbon emissions. To combat the rising concern of carbon emissions, firms adopt measures that result in some additional costs. This paper aims to detect the optimal total average cost of the inventory, taking into account one-way substitution of items consisting of a fraction of defective items, and an additional cost is implemented to reduce carbon emissions. The results of the model indicate that both the storage cost and the rate of inflation play a significant role in determining the expected total cost. Notably, a reduction of 67% in the inflation rate leads to a 250% rise in the expected total cost, highlighting the strong sensitivity of the system to inflationary effects. Sensitivity analysis and a numerical illustration are provided to validate the results.</p>