How does carbon quota affect China's auto industry? A study on the incentives of carbon quota

Abstract

The sustainable and healthy development of the new energy vehicle (NEV) industry requires the support and guidance of relevant policies. However, the Chinese auto industry is currently facing problems such as subsidy withdrawal and redundancy of positive credits. To better guide the high-quality development of NEV industry and support the achievement of carbon peak and carbon neutrality goals, it is necessary to explore new programs to improve the existing policy system. In this context, this study explores the incentive mechanism of carbon quota policy on the technological innovation of new energy vehicles and puts forward targeted suggestions for policy implementation. A system dynamics model is used to analyze the interactions between the market, technology, and policy subsystems under the carbon quota policy. The findings suggest that by incorporating the new energy vehicle carbon quota policy into the carbon trading market, setting the carbon trading price at 367 yuan/ton enables China to reach the industry's carbon peak objective by 2028. Moreover, with the ratio of targeted support funds for new energy technologies and funds to stimulate enterprises' research and development (R&D) investment set at 1:4, the industry is projected to achieve a balanced supply and demand state within the carbon trading market by 2035. The results underscore the importance of carefully designed carbon quota policies in fostering NEV innovation and ensuring the industry's long-term sustainability.