Is carbon regulation better than cash subsidy? The case of new energy vehicles

Abstract

<p>New energy vehicles (NEVs) are welcomed by both policymakers and consumers because of their energy saving and low carbon properties. However, due to their high production cost and limited cruising range, the development of the NEV industry relies heavily on governments' cash subsidy (CS) programs. At the same time, policymakers in several countries, including the United States (California) and China, have introduced carbon regulation (CR) to re-energize the NEV market. CS and CR have different impacts on the consumer and production sides. To this end, we propose a hybrid model combining the advantages of both. Through this model, the impacts of different interventions on product demands, profits, carbon emissions and technology R&D are derived: (1) CS always increases the demand for NEVs, while CR promotes NEVs only when NEVs are emission saving" providing CS increases the profits of the supply chain members, but supply chain profits under CR show uncertain trends" (2) CS reduces total emissions only if the unit carbon emission of NEVs is small enough, and the effect of NEVs' carbon quota on total emissions under CR shows a similar trend, whereas the impact of carbon price on total emissions under CR depends on specific thresholds. Further results show that when a customer values NEVs highly, the proposed hybrid model produces the lowest total emission" (3) Optimal technology R&D for the cruising range of NEVs increases under CS if the subsidy provided is based on the actual cruising range" otherwise, CR performs better. The hybrid model shows potential in outperforming the other two policies in terms of the optimal technology R&D" (4) Supply chain integration decreases the optimal technology R&D in the case of CR, whereas in the case of CS, technology R&D does not vary with integration or decentralization of the supply chain.</p>