Cost-reducing strategy or emission-reducing strategy? The choice of low-carbon decisions under price threshold subsidy

Abstract

Different from the traditional subsidy scheme previously studied, we explore the incentive of price threshold subsidy scheme (PTS) for the sustainable operation of automobile enterprises. A product differential model on gasoline vehicles (GVs) and battery energy vehicles (BEVs) is analyzed within a PTS mechanism. We examine and compare the economic and environmental effectiveness of two low-carbon strategies: BEV cost reduction (BCR) strategy and GV emission reduction (GER) strategy. The results indicate that the PTS forces the manufacturer to deploy three different pricing decisions based on BEV production costs. Raising the price threshold is a positive sign for the manufacturer. However, when the government implements the PTS policy mainly to increase BEV sales, blindly raising the price threshold under the medium-cost case will be counterproductive. Besides, the active BCR strategy can bring significant economic and environmental benefits compared to the strategy without cost investment. We unexpectedly find that high consumer environmental concerns trigger BCR strategy to generate greater cost advantages. But the BCR strategy is not always the optimal choice. When the initial carbon emissions of GV are low and the emission reduction efficiency is high enough, the GER strategy is more effective than the BCR strategy in terms of profit and total carbon emissions. And this advantage expands with the increase in BEV cost and emission-reducing subsidy.