Carbon Market Multi-agent Simulation Model

João Bernardo Narciso de Sousa, Zafeiris Kokkinogenis, Rosaldo J. F. Rossetti

Abstract: Carbon Markets are a market-based tool to help the fight against climate change by reducing greenhouse gases (GHG) emissions. Corporations have to buy allowances covering the emissions they produce, being required to pay heavy penalties otherwise. It is based on the ‘cap and trade’ principle, meaning that there is a cap value - the maximum number of allowances being sold - providing scarcity to the market. This paper proposes a formalization of an agent-based model that replicates the context of applying a carbon auction market and other regulatory mechanisms and presents the results of various experiments of different policies to gather some intuitions regarding the functioning of carbon markets.