Subsidy phase-out and dual-credit policy: strategic decisions for emissions-reduction and vehicle supply chain transformation

Purpose In order to achieve the Sustainable Development Goals, governments have implemented subsidy policies to promote the adoption of new energy vehicles (NEVs) and reduce emissions from fuel vehicles (FVs). Nevertheless, incidents of subsidy fraud have resulted in the phase-out of these incentives, the dual-credit mechanism has emerged as a pivotal regulatory tool for fostering low-carbon vehicle development. We examine how subsidy phase-out interacts with the dual-credit policy to affect manufacturers’ emissions-reduction R&D, NEVs and FVs market share, and overall supply chain profitability. Design/methodology/approach We analyze the impact of the dual-credit policy by developing a Stackelberg game model involving the government, a manufacturer producing both NEVs and FVs, a distributor, and consumers. Findings Our results show that phase-out of subsidies incentivizes manufacturers to invest in emissions-reduction R&D, which enhances supply chain profitability. When subsidies are generous, higher credit prices and stricter fuel consumption targets are particularly effective in stimulating such investments. Moreover, as credit prices rise, the optimal retail price of NEVs consistently decreases. In contrast, the pricing behavior of FVs exhibits scenario-dependent variation. When the subsidy is moderate, the optimal prices of FVs increase with the credit price. However, under generous-subsidy conditions, this relationship becomes contingent upon the investment cost coefficient in R&D. Originality/value We derive an interesting conclusion that the fuel consumption target has a dual effect: under generous subsidies, more stringent targets increase NEV market share, whereas under limited subsidies, they inadvertently enhance FV attractiveness, thereby dampening NEV demand.