How carbon trading policy should be integrated with existing industrial policies: A case study of Chinese automotive industry

As a widely used tool to reduce carbon emissions, the carbon trading policy can promote the sustainable development of industry. However, issues such as carbon trading pricing mechanism hinder countries' implementation of carbon trading policy in the automotive industry. To address these issues, this study adopts the directional distance function to calculate the marginal abatement cost (MAC) of CO2 among the representative vehicle enterprises in China and establishes a carbon quota transaction pricing mechanism based on an improved double auction model. Furthermore, by analyzing the impacts of carbon trading on technological innovation, this study constructs a carbon quota trading system dynamics model based on the aforementioned transaction pricing mechanism and obtains the simulation results of the market structure, energy consumption per vehicle and carbon price in different policy scenarios. The study finds that the average MAC of the 10 representative enterprises is approximately 2632 CNY per ton. Relying solely on purchase tax exemptions and dual-credits policies, it is difficult to achieve the 2030 target of 11 kWh/100 km average energy consumption for battery electric vehicles and to reach the carbon peak by 2028. However, by effectively integrating with existing industry policies, the carbon trading mechanism can facilitate the automotive industry to achieve emission and energy consumption control targets on schedule, with carbon prices maintained at a reasonable level of 500–1600 CNY per ton. Therefore, the government can set the upper limit of the carbon trading price for the automotive industry based on the critical carbon price under different policy combinations to incentivize vehicle manufacturers to participate in carbon trading and reduce resistance to the implementation of the carbon trading policy.