Dual credit policy, product line decisions, and CO₂ emission reduction

The dual credit policy (DCP) is promulgated to promote new energy vehicles (NEVs) and improve fuel economy. Despite the profound impact of the DCP on nearly all automakers in the Chinese market, its influence on product line decisions remains insufficiently understood. The purpose of this study is to reveal how the DCP Amendments influence automaker’s product line decisions and subsequent CO₂ emissions. We introduce a decision-making model under the DCP regulations involving three types of products to analyze the optimal product line decisions in three scenarios: a business-as-usual scenario, a relaxed DCP scenario, and a strict DCP scenario. Our findings reveal that the DCP has a cost-adjustment effect on all products through the credit quota, credit ratio, and quantity multiplier associated with low-fuel consumption vehicles (LFCVs). This adjustment in the cost structure influences the optimal product portfolio, thereby impacting the output of products and CO₂ emissions. We demonstrate that the optimal product portfolio hinges on relevant cost thresholds, which, in turn, are influenced by key policy parameters. Furthermore, we establish that the DCP effectively promotes LFCVs only when the electricity consumption of NEVs is low. Under the strict DCP scenario, LFCV production is stimulated, albeit at the expense of the reduced NEV output compared to those under a relaxed DCP. While both the relaxed and strict DCPs contribute to greener product portfolios, the former proves more effective in curtailing CO₂ emissions. The adverse effects of a strict DCP can be mitigated by paying more attention to NEV electricity consumption.