Impact of a Carbon Tax on Energy Transition in a Deregulated Market: A Game-Based Experimental Approach

Abstract

Energy companies in a competitive market face a dilemma between the short-term revenue benefits of using fossil fuels and the long-term market benefits of investing in renewables. This dilemma is caused by uncertainties in price competition, return on investment in renewables, and the price of fossil fuels. This study experimentally investigated whether a carbon tax contributes to overcoming this conflict using an online multi-player game. The participants played the role of energy companies that produce energy from either fossil fuels or renewables. The game was played seven times each, with and without taxation on fossil fuels. In the with-tax condition, the rate and timing of taxation were informed at the beginning of the game, and the tax was imposed late in the game. The gameplay results showed that the investment in renewables was increased by the actual taxation but not by the information of taxation in advance. The answers to in- and post-game questionnaires indicated that information on taxation did not reduce player anxiety about future uncertainties. These results suggest the importance of considering the effects of policies on the perceptions and future behaviors of market players.