<p>Consumers’ growing environmental awareness and preference for low-carbon products significantly influence market demand. In response, industries worldwide are increasingly adopting environmentally sustainable production practices to maintain competitiveness. This paper investigates a dual-channel supply chain model operating under a low carbon environment, where the manufacturer’s emission reduction decision is driven by cap-and-trade regulation and consumers’ low-carbon preference. The model incorporates a recycling-oriented “buy new with exchange” policy by the manufacturer to endorse environmental sustainability. Using a Stackelberg game-theoretic approach, the study analyses the emission reduction behavior, the old product exchange value and pricing strategies of the players. Results indicate that manufacturer benefits from the ‘buy new with exchange’ scheme, when manufacturing becomes expensive or carbon price rises. Furthermore, the numerical experiments show that increasing carbon price and consumers’ stronger low-carbon preferences boost supply chain emission reduction and overall sustainability. Moreover, consumers’ low-carbon preferences consistently benefit supply chain members. In contrast, the firm’s profit increases with carbon price only under a higher carbon cap, due to the ability to sell surplus carbon credits.</p>