How to Build a Green Mobility System? A Dilemma between Market Growth and Emission Reduction

Substituting electric vehicles (EVs) for gasoline-powered vehicles (GVs) is conducive to a green mobility system. However, this will inevitably increase the operational costs of mobility service providers (MSPs) as they will be required to retire their existing GVs and replace them with EVs. How to motivate MSPs to replace their GVs with EVs and mitigate the negative impact on the mobility system is a fundamental challenge. To address this issue, government agencies (Govs) typically establish a carbon policy portfolio that integrates the environmental policy (e.g., the carbon cap-and-trade scheme) with the industrial policy (e.g., the GV improvement scheme). In this situation, MSPs must decide whether to i) replace their existing GVs with new EVs and/or ii) install emission reduction devices and purchase carbon permits for GVs. In addition, in response to the Gov's carbon policies and competition among MSPs, they need to reset the number of operating vehicles. To describe the interactions between MSPs and the Gov, we propose a sequential-move game model. Building on the basic game model, we investigate (i) the effect of MSP heterogeneity, and (ii) the effect of stochastic travel demand on the equilibrium outcome. Our analytical findings indicate that as the Gov imposes stricter regulations, the EV adoption rate increases but the cumulative number of operating vehicles decreases. This eventually increases equilibrium ride prices and MSPs' profits. Moreover, when heterogeneous MSPs exist, MSPs operating exclusively EVs will operate more vehicles, as opposed to MSPs operating both EVs and GVs. Once information leakage occurs and if the expected market size is larger than under the full information scenario, MSPs will be worse off, and the Gov will impose harsher regulations