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Regulatory commitment versus non-commitment: Electric vehicle adoption under subsidies and emission standards

Bernd Theilen and Françeska Tomori

Resource and Energy Economics, 2023, vol. 74, issue C

Abstract: We compare two regulatory structures in the application of emission standards and a subsidy scheme in the automobile market. The regulator can either commit to an emission standard or is not able to commit. Firms compete á la Cournot and produce fuel-powered and electric vehicles. The emissions of fuel-powered vehicles can be abated by means of investing in emission-reducing innovation. Our results indicate that under commitment there are less emissions, higher subsidies and a major adoption of electric vehicles. By contrast, non-commitment yields more fuel-powered vehicles, more vehicles in total and higher consumer surplus. Electric vehicle producers obtain higher profits under commitment, whereas fuel-powered vehicle producers might be better off under both regulatory structures. Social welfare is higher under non-commitment as long as environmental damages are regarded severe. Otherwise, commitment is socially preferable. This result provides an explanation for observed differences in the duration of environmental standards between the US, the EU and China.

Keywords: Environmental regulation; Emission standards; Subsidy scheme; Commitment; Innovation; Electric vehicles; Fuel-powered vehicles (search for similar items in EconPapers)
JEL-codes: L51 O38 Q55 Q58 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:74:y:2023:i:c:s092876552300043x

DOI: 10.1016/j.reseneeco.2023.101388

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