Operations and decarbonization of gasoline vehicle automakers under the dual credit policy: green technology innovation and electric vehicle market entry strategies

The Chinese government has implemented a dual-credit policy for the auto industry to promote electric vehicle (EV) diffusion and reduce fuel consumption in gasoline vehicles (GVs). Traditional GV automakers, in response to this policy, typically employ two strategies: green technology innovation and EV market entry. To examine how the dual credit policy could contribute to the operations and decarbonization of GV automakers, we build an analytical model to analyze the role of green technology innovation and/or EV market entry strategies on their optimal decisions and total carbon emissions. Our findings reveal that both green technology innovation and EV market entry strategies can effectively motivate the automaker to decarbonize but in different ways. Green technology innovation reduces total carbon emissions by lowering GV fuel consumption, while EV market entry achieves the same outcome by reducing GV production. Nonetheless, the substitution effect between the two strategies may slow the performance of decarbonization when both are employed. When the automaker enters the EV market, intensified product competition may increase or decrease optimal GV and EV quantities, which are related to the new energy vehicle (NEV) credit price and product competition intensity. Although higher NEV credit prices can consistently incentivize the automaker to decarbonize in a pure EV market entry strategy, it may no longer be effective in the presence of green technology innovation. Our results provide management insights into the operations and decarbonization of GV automakers under the dual credit policy.