Production and decarbonisation of conventional gasoline vehicle automakers under subsidy and regulation policies

Decarbonising the transportation sector through electrification is critical to reducing greenhouse gas emissions. To explore the decarbonisation of conventional gasoline vehicle (GV) automakers in GV and/or electric vehicle (EV) production, we develop analytical models under pure subsidy, pure regulation, and hybrid subsidy-regulation policies. We first examine the monopoly GV automaker’s EV market entry intention in each policy and find that it always increases with consumer range sensitivity and subsidy/regulation parameters, but decreases with product substitutability between the two vehicles. Then, we analyse the implication of policy changes on equilibrium outcomes. Our results show that although introducing regulations and removing subsidies have opposite effects on optimal production and driving range decisions, both might stimulate or restrict the GV automaker to decarbonise, depending on the unit carbon emissions of GVs and EVs. Finally, we extend the monopoly model to the duopoly case, showing that while entering the EV market hurts the EV automaker, it allows the GV automaker’s carbon emissions to always decrease with GV credit coefficients. Together with sensitivity analyses on key parameters, our findings provide insights not only for GV automakers to respond to policy changes but also for governments to design incentives for EV diffusion.