A hybrid electric vehicle market penetration model to identify the best policy mix: A consumer ownership cycle approach q Yongseung Lee a , Chongman Kim b , Juneseuk Shin c,⇑ a Graduate School of Management of Technology, Sungkyunkwan University, 2066, Seobu-Ro, Jangan-gu, Suwon, Gyeonggi-do 440-746, Republic of Korea b Department of Industrial and Management Engineering, Myongji University, San 38-2, Namdong, Cheoin-gu, Yongin, Gyoenggi-do, Republic of Korea c Department of Systems Management Engineering, Sungkyunkwan University, 2066, Seobu-Ro, Jangan-gu, Suwon, Gyeonggi-do 440-746, Republic of Korea highlights  Our model captures circular causal dynamics among consumer purchase, use and retirement.  We suggest a new HEV market penetration model of identifying the better combination of policies.  Combination of purchase tax credit and retirement subsidy is effective more than any single policy.  Smaller one among policy incentives become a bottleneck for market penetration.  50% tax credit and $1300 retirement subsidy can achieve Korean objective of 800,000 HEVs by 2020. article info Article history: Received 22 March 2016 Received in revised form 7 October 2016 Accepted 15 October 2016 Keywords: Hybrid electric vehicle Market penetration System dynamics Consumer choice Retirement abstract HEV market penetration exists in a circular loop of purchase, use, retirement, and repurchase, i.e., the consumer ownership cycle. Existing HEV market penetration models focus on a single linear process, such as purchasing, without considering other processes. Market penetration policies based on such models can facilitate a single process, but they cannot boost market penetration as planned. Combining system dynamics with consumer choice models, we propose a new HEV market penetration model to describe the dynamic circular market penetration process as well as its interaction with macroeconomic condi- tions and government policies. In this way, our model finds bottlenecks, estimates the future effects of different policies to solve bottlenecks, and identifies more effective combinations of policies to boost HEV market penetration. Our empirical analysis of Korean HEV market penetration reveals that combin- ing a tax incentive and retirement subsidy will be more effective than offering either of those alone. Also, HEV market penetration becomes slower when the tax incentive is smaller than the retirement subsidy (or vice versa) because consumers escape the market penetration loop. Ó 2016 Elsevier Ltd. All rights reserved. 1. Introduction Electric vehicles (EVs) are one way to reduce emissions in the transport sector, but they face several market barriers to their widespread use: the price of electricity, availability of a charging infrastructure, and consumer acceptance [1]. As a bridge to EVs, hybrid electric vehicles (HEVs) have been introduced, but these have also suffered from slow market penetration. The HEV market share in 2014 was just 1.0% in the EU and 3.0% in the US, both of which were far below the policy objective of 10% by 2012 [2,3]. Similarly, the Korean government has promoted HEV market pen- etration; unfortunately, the HEV market share in Korea was 0.006% of all passenger cars in 2012 [4]. Market forecasting models serve the needs of policymakers in setting achievable policy objectives and designing policies. How- ever, as the HEV market becomes more and more complicated, the gap between the predicted and actual HEV market penetration has widened, necessitating more advanced models. In the HEV/EV market modeling literature, the primary methods can be catego- rized as agent-based models, market penetration rate/time series models, and consumer choice models [5]. Agent-based models have the advantages of considering multiple agents and describing complex interactions, but they are limited by their complexity, sensitivity, and limited data availability. Market penetration/times http://dx.doi.org/10.1016/j.apenergy.2016.10.038 0306-2619/Ó 2016 Elsevier Ltd. All rights reserved. q This article has not been previously published and is not under consideration for publication elsewhere. ⇑ Corresponding author. Tel.: +82 31 290 7607; fax: +82 31 290 7610. E-mail addresses: mithlee@gmail.com (Y. Lee), chongman@mju.ac.kr (C. Kim), jsshin@skku.edu (J. Shin). Applied Energy 184 (2016) 438–449 Contents lists available at ScienceDirect Applied Energy journal homepage: www.elsevier.com/locate/apenergy