Environmental and economic consequences of the incentive policy on electric vehicle industry: A CGE based study in China

Zhiwei Guo, Tao Li, Shitong Peng, Hongchao Zhang

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


Environmental issues as pollutant emissions and resource depletion urge people to seek a replacement for the internal combustion engine vehicle (ICEV). Electric vehicles (EV) are considered as the preferred alternative to address these problems by means of reducing the use of fossil energy. After implementing many years of the incentive policy, the market share of electric vehicles has experienced great growth in China. Recently, the government considers the phase-out of the subsidy within 3 years. In this study, based on the 2017 social accounting matrix (SAM), we build a computable general equilibrium (CGE) model. And five scenarios are developed to evaluate the environmental and economic impacts of the policy changes, specifically, the decreasing subsidy and the sustained technological progress requirements. The results reveal that both the subsidy and technological progress can contribute to the economic growth, and a 30% cutback of subsidy does weaken the economic benefit by 23.5%-33.3%. And the subsidy increases the overall emissions greatly while technological progress contributes to emission reductions. Another finding is that the substitution ratio between ICEV and EV is roughly 1:3 under the effect of the subsidy. However, technological progress provides a ratio of 1:1.3, close to the perfect 1:1 substitution commonly assumed in life cycle assessment (LCA) studies. Our study suggests that compared with the subsidy, encouraging technological progress is a more sustainable option for policy-making.

Original languageEnglish
Article number105542
JournalResources, Conservation and Recycling
StatePublished - Jun 2021


  • Computable general equilibrium
  • Consequential LCA
  • Electric vehicles
  • Environmental impacts
  • Subsidy policy


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