The growing concerns over environmental degradation have intensified the focus on green products in production and supply chain models. This paper develops a two-echelon inventory model for substitutable products regular and green under an inflationary environment. The model incorporates price, advertisement, and greenness-dependent demand, and accounts for carbon emissions generated during setup, manufacturing, and holding processes. A subsidy is provided for green products based on their degree of greenness, while regular products incur a tax to promote eco-friendly alternatives. Mathematica 12 software is used to solve the problem. To validate the proposed model economically, a numerical example is provided. Additionally, a sensitivity analysis of the key parameters is performed to understand their influence on the optimal solution. The findings also highlight that green products consistently produce lower carbon emissions than regular products across all modelling scenarios, underscoring their environmental benefits. This research offers actionable strategies for managers to achieve environmental sustainability through green investments and adaptive supply chain practices.