Research on credit pricing mechanism in dual-credit policy: is the government in charge or is the market in charge?

The dual-credit policy, implemented by the Chinese government on April 1, 2018, aims at boosting the production of new energy vehicles and further reducing fuel consumption of internal combustion engine vehicles. However, whether the policy is effective has caused controversy among many scholars in China and one of the hot spots of debate is about the effectiveness of the pricing method. In this paper, the government pricing model of dual-credit policy and the market pricing model are compared by the optimization theory. The factors include the transaction price of credits, the quantity of vehicles, the monopoly manufacturer’s profits, and social welfare. Our results show that the dual-credit policy benefits energy saving and emission reduction in the transport sector. In addition, it is suggested that the government should formulate the transaction price of credits and subsidy the automobile enterprise in the early stage of the policy while adopting free market pricing in the late stage of the policy.