How to build a green transportation system? A dilemma between market growth and emission reduction

Green transportation, as one of the key objectives of global climate action, has drawn growing attention worldwide. To achieve the climate goal, replacing gasoline vehicles (GVs) with electric vehicles (EVs) or installing exhaust abatement devices for GVs are two widely-used measures to reduce carbon emissions. However, both measures will inevitably increase the operational costs of existing transport service operators (TSPs). How to motivate TSPs to increase their fleet electrification rate, meanwhile alleviating the negative impact on their profitability becomes the key challenge. This study proposes a policy portfolio integrating carbon cap-and-trade policy and industrial policy (e.g., installing exhaust abatement devices for GVs) to tackle this problem. In our model, TSPs need to decide the EV adoption rate and the cumulative number of operating vehicles. Meanwhile, these TSPs compete for travelers in the transport market, forming an oligopoly competition. Our analytical results show that as the government agency sets a stricter exhaust emission standard, the EV adoption rate will be increased while the number of operating vehicles will be reduced, which ultimately raises the ride price of transport service. In addition, we derive the conditions under which TSPs are better off and worse off, but travelers are found to be always worse off. Our numerical results indicate that if there have already existed some TSPs with purely EVs, the total number of vehicles will be further reduced and then the ride price will be increased accordingly, which further harms the payoffs of travelers.