| Summary: | Limiting the extent and effects of climate change requires the transformation of industrial, commercial, energy, and transportation systems. To achieve its goals, a near-term policy has to sustain itself for many decades. Market-based policies should prove useful in promoting such transformations. But which policies might do so most effectively? How can such policies be designed so that they endure politically over the long-term? While standard economic theory provides an excellent understanding of the efficiency-enhancing potential of markets, it sheds less insight on their transformational implications. In particular, the introduction of markets often also leads to significant changes in society's values, technology, and institutions, and these types of market-induced transformations are generally not well understood. This report presents a simulation framework with both game theoretic and agent-based components designed to model evolutionary changes in the firms belonging to an industry sector and how these may form changing coalitions that influence how government sets a price for carbon emissions. The model captures the complex interactions between market-formation, technological innovation, government regulatory policy and the emergent climate change. It tests a set of outcome measures under different carbon emission control policies. The model is a tool to support the design of a government's regulatory policy by using robust decision making to examine how measures intended to reduce emissions of climate-changing greenhouse gasses may give rise to market-induced transformations that in turn may ease or hinder the government's ability to maintain its policy.
Limiting the extent and effects of climate change requires the transformation of industrial, commercial, energy, and transportation systems. To achieve its goals, a near-term policy has to sustain itself for many decades. Market-based policies should prove useful in promoting such transformations. But which policies might do so most effectivelyHow can such policies be designed so that they endure politically over the long-termWhile standard economic theory provides an excellent understanding of the efficiency-enhancing potential of markets, it sheds less insight on their transformational implications. In particular, the introduction of markets often also leads to significant changes in societyѓ́ʻ⁺ѓє́#x9C;s values, technology, and institutions, and these types of market-induced transformations are generally not well understood. This report presents a simulation framework with both game theoretic and agent-based components designed to model evolutionary changes in the firms belonging to an industry sector and how these may form changing coalitions that influence how government sets a price for carbon emissions. The model captures the complex interactions between market-formation, technological innovation, government regulatory policy and the emergent climate change. It tests a set of outcome measures under different carbon emission control policies. The model is a tool to support the design of a governmentѓ́ʻ⁺ѓє́#x9C;s regulatory policy by using robust decision making to examine how measures intended to reduce emissions of climate-changing greenhouse gasses may give rise to market-induced transformations that in turn may ease or hinder the governmentѓ́ʻ⁺ѓє́#x9C;s ability to maintain its policy.
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