Exploring the effectiveness of China's dual credit policy in a differentiated automobile market when some consumers are environmentally aware

Abstract

This paper analyzes how China's dual credit policy affects electric vehicle market penetration and energy efficiency improvement in a Hotelling's linear city model, when there exists a proportion of green consumers who are environmentally aware. We consider a model where the two firms produce electric vehicles and gasoline vehicles respectively, and compete in prices and R&D investment which has an influence on energy efficiency of vehicles and thus perceived consumer utility. Our result shows that the adoption of electric vehicles would be facilitated with the increasing number of green consumers and rising price of new energy vehicle credits. The fall of standard new energy vehicle credits might speed up electric vehicle adoption significantly if it helps eliminate the credit surplus and raise the credit price effectively. Surprisingly, the growth of new energy vehicle credit percentage requirement may not play an important role in promoting electric vehicles. Meanwhile, we find that fuel efficiency improvement of gasoline vehicles may be slightly hampered.