The article models the borrowing producers in a production supply chain with insurer green finance. The borrowing firms' transacting carbon allowances (CA) under the cap-and-trade mechanism affect the insurer's loan rate-setting and guaranteed rate-setting decisions. One result shows that a stringent regulatory cap toward carbon emission reduction increases the loans at a reduced loan rate (i.e., reducing the insurer's interest margin). The most significantly reduced margin is the case of the product producer and input provider being CA buyers, and the minor reduction is the CA sellers. We also show that a strict regulatory cap increases the life insurance policies at an increased guaranteed rate (i.e., decreasing the insurer's interest margin), resulting in higher policyholder protection and, thus, insurance stability. Policyholder protection is the most (least) significant when the borrowing firms in the supply chain are CA sellers (buyers) in the cap-and-trade mechanism. In conclusion, the significantly increased policyholder protection reduces the insurer's profits less considerably due to the stringent cap regulation toward sustainable development in a green production supply chain.
