Dual-Credit Policy

The Dual-Credit Policy, officially known as the "Parallel Administrative Measures for Passenger Vehicle Corporate Average Fuel Consumption and New Energy Vehicle Credits", was jointly promulgated in 2017 by the Ministry of Industry and Information Technology (MIIT), the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, and the General Administration of Quality Supervision, Inspection and Quarantine, coming into effect on 1 April 2018. Designed to simultaneously drive fuel economy in conventional internal combustion engine (ICE) vehicles and spur the development of the new energy vehicle (NEV) sector via a market-driven credit trading mechanism, the policy is regarded as the "key guiding compass" steering the automotive industry's green transition post-subsidies.

Policy Mechanism

The "Dual Credits" encompass Corporate Average Fuel Consumption (CAFC) credits and New Energy Vehicle (NEV) credits.

CAFC Credits: The government establishes fuel consumption compliance targets. Carmakers beating the target generate positive credits, whilst exceeding fuel consumption ceilings incurs negative credits. In 2025, the industry's actual corporate average fuel consumption climbed back to 3.38L/100km, expanding the volume of negative CAFC credits to 9.412 million points, a 61.0% year-on-year increase.

NEV Credits: The regulatory authorities mandate specific NEV credit production quotas. Positive credits are earned if the volume and technical specifications of NEVs produced meet the required benchmarks; otherwise, negative credits are generated.

Carmakers running a credit deficit can offset negative balances through several channels: carrying forward their own surplus CAFC credits, acquiring surplus CAFC credits from affiliated companies, utilising their own positive NEV credits, or purchasing surplus NEV credits from other manufacturers. Failure to offset deficits within the stipulated timeframe will lead to regulatory penalties, including the suspension of type-approval filings and production halts for high-fuel-consumption models.

Key Regulatory Changes for 2026–2027

In November 2025, the MIIT released the "Notice on Matters Concerning the Management of Passenger Vehicle Corporate Average Fuel Consumption and New Energy Vehicle Credits for 2026–2027", introducing the following key revisions:

Steeper Credit Quota Ratios: The NEV credit quota requirements for 2026 and 2027 are set at 48% and 58% respectively, marking a notable jump from 38% in 2025. For instance, a carmaker with an annual output of 1,000,000 units must manufacture 580,000 NEVs in 2027 to remain compliant.

Sharp Reduction in Credit Value: The baseline credit value awarded per standard NEV passenger car has been slashed by an average of 50% compared to the previous stage, progressively shifting the industry towards a "one credit per vehicle" baseline.

Comprehensive Upgrade to Technical Benchmarks:

• Battery Electric Vehicles (BEVs): Pure electric driving range must exceed 300 km to qualify for 1 base credit, whilst models with a range below 100 km will receive zero credits. A new low-temperature range adjustment coefficient has been introduced—models retaining over 65% of their rated range at -7±3°C with cabin heating activated will be awarded a 1.2x credit multiplier.

• Plug-in Hybrid Electric Vehicles (PHEVs): Fuel consumption thresholds in charge-sustaining mode have been tightened from 70% to 60% of the fuel consumption limit.

• Fuel Cell Electric Vehicles (FCEVs): Pure hydrogen driving range must not be lower than 300 km, alongside a cold-start operating capability of down to -30°C.

Concessions for Low-Volume Carmakers: For independently operated carmakers with an annual production or import volume of fewer than 2,000 units, the CAFC compliance target is relaxed by 60% if average fuel consumption drops by over 4% year-on-year; a 30% relaxation applies for reductions between 2% and 4%.

Credit Pooling Mechanism

Introduced during the 2023 revision, the credit pooling mechanism is designed to mitigate extreme price volatility in the trading market. When nationwide surplus NEV credits exceed 200% of total credit deficits, manufacturers are permitted to bank surplus credits into the pool (valid for 5 years); withdrawals are unlocked once the supply-demand ratio falls below 150%. This mechanism prevents credit prices from collapsing and safeguards the effectiveness of policy guidance.

Industry Impact

In 2024, 52 domestic passenger vehicle manufacturers failed to meet their corporate average fuel consumption targets, the majority being joint-venture brands; 19 carmakers recorded zero NEV credits, indicating that they did not bring any electrified models to market throughout the year.

The policy's ramifications have transcended mere regulatory compliance. In 2022, NEV credits traded at an average price of around RMB 1,128 per credit, enabling credit-rich players like BYD and Tesla to unlock substantial revenue streams. Under China's "Dual Carbon" framework, the Dual-Credit Policy is progressively exploring a transition towards an automotive carbon emissions trading scheme, further reinforcing its role in energy conservation and decarbonisation.