Optimizing convergence for dual-credit policy and carbon trading in the automobile sector: A bi-layer planning model

Abstract

A growing call has been made to convert the dual-credit policy to carbon trading to further unleash the carbon reduction potential of the automobile sector as China’s dual-carbon strategy progresses. However, controversy exists in academia about the convergence timing of the two policies. Therefore, this paper builds a bi-layer planning model to show the interaction between government policies and automakers’ production and R&D decisions, based on which to explore the optimal decision on carbon trading’s introduction timing and carbon quotas. The results show that the current is not the optimal time to bridge the two policies considering the price difference between carbon pricing and credits. Interestingly, we found that the reduction in carbon emissions per vehicle for new energy vehicles and conventional fuel vehicles has an opposite effect on the optimal timing of the introduction of carbon trading. Moreover, a comparison of the impact of new energy vehicle profits and carbon prices on the timing of introduction shows the former has a greater impact on the adoption of carbon trading in the automobile sector.