Strategic niche management of alternative fuel vehicles: A system dynamics model of the policy effect

Abstract

Using a system dynamics model, this study investigates the market barriers to increasing the market share of alternative fuel vehicles (AFVs) and possible policy options to overcome them, in particular strategic niche management (SNM). The model assumes that the operating costs of AFVs, including fuel supply and vehicle maintenance costs, have a positive feedback relationship with the scale of overall car stocks sold. System dynamics modelling is a useful approach to model a feedback effect like this situation. According to the simulation results, if there is a strong network effect on vehicle operating costs, it is difficult to achieve the shift to alternative fuel vehicles, even in the long term, without policy intervention. Although SNM alone may not be enough to sustain the rise of the market share of AFVs with a strong network effect, SNM seems to be very effective in strengthening the policy effect of financial incentives. A relatively small budget devoted to SNM can result in a substantial difference in AFV market share. However, the effectiveness of SNM also depends on the magnitude of the network effect. SNM is more effective when applied to AFVs with a strong network effect.