A UTILITY-BASED OPTIMIZATION FRAMEWORK FOR MIXED ICE–EV FLEETS UNDER CARBON TAX, SUBSIDIES, ENVIRONMENTAL PREFERENCE, AND RISK

The transition toward sustainability has become the major challenge of the twenty-first century. The transport sector is responsible for nearly one-quarter of carbon dioxide emissions, and the core of current decarbonization strategies is electrification. This study develops an analytical model to explain how fleet operators determine the optimal mix of internal combustion engine (ICE) and electric vehicles (EVs) under various policy and behavioral influences. Unlike classical firm models focusing solely on profit maximization, the proposed framework reflects the evolving corporate behavior in the sustainability era, where firms derive utility from both economic performance and their environmental and social standing. By extending a risk-adjusted Cobb–Douglas utility function to incorporate environmental awareness and uncertainty, the model explains how carbon taxation, decarbonization subsidies, perceived risk influence fleet composition. The results indicate that carbon taxes discourage ICE usage, subsidies and infrastructure investments accelerate electrification, environmental awareness amplifies these effects. Beyond economic incentives, the findings highlight the strategic importance of ESG commitments and risk management in corporate decision-making during the Sustainability era. This model contributes by developing a theoretical framework that integrates microeconomic optimization, behavioral economics, and policy design, providing guidance for both firms and regulators in advancing sustainable transportation systems.