Interaction mechanism between dual-credit pricing and automobile manufacturers’ electrification decisions

Abstract

The newly released dual-credit policy (DCP) in 2017 established a market-based credit trading scheme in China to facilitate the electrification transition of automobile manufacturers. However, it has not yet served its intended purpose perfectly. This study concerns the interaction between credit pricing and manufacturers’ electrification and develops a mathematical model of optimal investment timing and capacity utilization rate to investigate the traction mechanism and optimization strategy of the DCP. The results suggest that tightening the policy positively impacts electrification but does not necessarily lead to immediate investment by all manufacturers. Interestingly, while electrification leads firms to generate more credits to meet policy constraints, it promotes higher capacity utilization rates, resulting in equilibrium credit prices and greenhouse gas (GHG) emissions potentially rising rather than falling. Furthermore, a novel government target indicator that includes economic and environmental aspects is introduced to help revise the DCP and advise automobile manufacturers on electrification decisions.