Dual credit policy: promoting new energy vehicles with battery recycling in a competitive environment?

Abstract New energy vehicles have been recognized as the future direction of development in automobile industry. This paper investigates the issue of the impacts of subsidy policy and dual credit policy on new energy vehicle and fuel vehicle production decision considering battery recycling, in a competitive environment, where the market demand is determined by heterogeneous consumers’ utility. Due to that the market size of new energy vehicles is swiftly expanding, used battery is ushering in a period of renewal and replacement, but the performance efficiency of two policies is unclear in the presence of battery recycling. Considering the market of three primary players, the new energy vehicle manufacturer, the fuel vehicle manufacturer and government, non-cooperative game models are formulated in which the battery recycling rate and consumers’ environmental awareness are taken into accounts. Both the optimal policy decision for the government and the manufacturer is analyzed under three scenarios: subsidy policy, dual credit policy with single credit, and that with two credits, respectively. The results show battery recycling rate is the most crucial element influencing the new energy vehicle manufacturer’s competitive status under both policies. Meanwhile, no matter how changes in values of consumers’ environmental awareness, recycling rate, and subsidies for consumers, the new energy vehicle manufacturer stays a vulnerable position unless the government offers a new financial subsidy for the new energy vehicle manufacturer, rather than for consumers. Additionally, only in case of dual credit policy with two credits, increasing battery rate yields a demand spillover effect with a maximum percentage of 20.59%, which further verifies the efficiency of dual credit policy over subsidy one.