Abstract
Given the important role of the carbon market in fighting against global warming, the impact of information on the efficiency of the scheme is a critical issue for both its designers and the central authority. At least two aspects of information are worthy of attention. First is the incompleteness of information, with which the firms make decisions to minimize their abatement cost and maximize their profit. Second is the mechanism of information transmission. Based on an agent-based framework we established in our previous work, we explicitly depicted the first aspect and analysed its impact on firms’ decision-making and consequent market results. In this paper, we focus on the second aspect, transmission mechanism of information, which is depicted as an observation network among firms. The basis in reality is that the firms in the carbon market are usually from different industries or areas, and it is relatively easier to observe the conditions of firms from the same industry or area, corresponding to neighbours in the network. Four scenarios are considered, including no network, regular network, random network, and small-world network. We find that the existence of an observation network has a significant influence on the market results.
Highlights
Facing the challenge of global warming and the pressure of carbon emission reduction, the scheme of emission trading has been regarded as a flagship policy instrument
We find that the social average abatement cost decreases with rising EYEi, which indicates a higher efficiency of the carbon emission trading scheme
Based on the simulation results, we find that the existence of an observation network has a significant influence on the market results, including the allowance price and trading volume in the carbon market, product price and production in the output market, and firms’ total adoption of low-carbon technologies
Summary
Facing the challenge of global warming and the pressure of carbon emission reduction, the scheme of emission trading has been regarded as a flagship policy instrument. In our previous work [10], we establish an agent-based framework for the simulation of the carbon market, considering the four aspects of complexity above Within this framework, firms’ incomplete information is explicitly modelled as an attribute “Eyesight” of firms ( EYEi ), representing the limited number of other firms that a firm can observe when forming its forecast of the allowance price. The existence of an observation network among firms can influence firms’ forecasts of the allowance price through fundamental aspects of information, as well as their abatement-oriented decisions and the consequent market results. Based on the simulation results, we find that the existence of an observation network has a significant influence on the market results, including the allowance price and trading volume in the carbon market, product price and production in the output market, and firms’ total adoption of low-carbon technologies.
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