Subsidy Allocation for Emission Reduction from Non-Road Construction Equipment: A Static Game-Theoretic Analysis

Existing subsidy allocation approaches for emission reduction from non-road construction equipment (NRCE) primarily prioritize projects based on criteria such as cost-effectiveness and emission reduction potential. However, these approaches generally overlook contractors’ baseline probability of undertaking the proposed investment prior to the subsidy intervention. This may lead to the additionality problem where subsidies are allocated to projects that may have proceeded even without government support, or with a lower level of assistance, thereby reducing the potential for limited public funds to induce additional emission-reduction investments. To address this issue, this study develops a static game-theoretic model to estimate the contractor’s baseline investment probability at the subsidy application stage, when the government’s subsidy decision is uncertain. The applicability of the proposed baseline investment probability is demonstrated using data from seven non-road construction equipment replacement projects under the Emission Reduction Incentive Grants (ERIG) Program. The results show that incorporating the baseline investment probability changes project prioritization compared with the conventional cost-effectiveness criterion. The proposed metric provides complementary information for project selection and has the potential to support more effective subsidy allocation while reducing the likelihood of additionality. Plywood Usage and Wastage in Slab and Beam Formwork: