Structure Adjustment of Automobile Supply Chain Facing Low-carbon Emission Standard

Abstract Driven by the EU 2019 low-carbon emission standard for automobile industry, gasoline car brands such as Fiat have considered either to (1) pay penalty or (2) cooperate with E-vehicle brands such as Tesla to “pool” their carbon emissions. These two strategies result in corresponding supply chain structures where the latter has co-operation relationship between automobile brands because the gasoline car brand has to purchase and resell E-vehicles. In this paper, we study under what conditions the gasoline car brand will choose the “Pooling Strategy”, which promotes low-carbon transformation. We show that the gasoline car brand's profit will always be hurt by the “EU 2019 Standard”, but a sufficiently high excess emission premium can successfully induce the gasoline car brand to choose the “Pooling Strategy”. We then develop a lifetime environmental performance index and find that, interestingly, a tighter carbon emissions standard may result in worse environmental performance.