Fuel consumption-reduction investment decisions and coordination contracts in fuel vehicle supply chains: A dynamic analysis

The share of carbon emissions from road transport is as high as 14% of global carbon emissions; fuel vehicles account for a significant part of these emissions. Therefore, there is a long way to reduce fuel consumption in fuel vehicles. We consider the government’s choice of two policies, Vehicle Carbon Emission Regulation (VCER) and Dual Credit Policy (DCP), to regulate the fuel vehicle supply chain and construct a Stackelberg differential game model for fuel consumption-reduction investment decision and operation coordination in a fuel vehicle supply chain consisting of one supplier and one manufacturer. Furthermore, we analyze the supply chain’s equilibrium strategies under centralized and decentralized decision scenarios. Finally, design a bilateral sharing contract to coordinate the supply chain and verify the theoretical analysis by numerical simulation. The results show that the DCP has a stronger incentive for fuel consumption reduction investment than the VCER; the supplier’s profit increases as the severity of the two policies increases, but the change in the manufacturer’s profit is not consistent under the two policies, where the increase in the penalty rate under the VCER decreases the manufacturer’s profit. However, it falls and then rises with tighter fuel consumption standards under the DCP. At the same time, the two-way cost-sharing contracts can encourage more fuel consumption reduction investments while increasing the profits of supply chain members, which is a Pareto improvement for the ecosystem and the supply chain parties.