ABM-IAM: optimal climate policy under bounded rationality and multiple inequalities

Karolina Safarzyńska*, Jeroen C.J.M. van den Bergh

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Despite considerable concern about potentially inequitable effects of climate policy, models fall short in assessing their implications for policy design. To address this issue, we develop an agent-based climate-economy model, agent-based modelling-Integrated Assessment Model, as a disaggregated, behavioural approach to integrated climate assessment. It describes networks of heterogeneous consumers, banks, power plants and firms, and is calibrated on patterns of growth and carbon dioxide emissions generated by the DICE model of Nordhaus. Whereas the latter assumes full employment and abstains from a financial sector and inequality considerations, our approach relaxes these restrictions to obtain a more reliable assessment of climate policy impacts. We show that inequalities in labour and capital income serve as essential but overlooked links between climate-change damages and optimal climate policy. Our result show that lower inequalities of labour income increase the social cost of carbon (SCC), while the impact of capital income inequalities on the SCC depends on the share of population receiving capital rents.

Original languageEnglish
Article number094022
Pages (from-to)1-16
Number of pages16
JournalEnvironmental Research Letters
Volume17
Issue number9
DOIs
Publication statusPublished - Sept 2022

Bibliographical note

Funding Information:
Safarzyńska’s research was supported by the National Science Centre of Poland, Grant 2016/21/B/HS4/00647. Van den Bergh was supported by an ERC Advanced Grant from the European Research Council (ERC) under the European Union’s Horizon 2020 Research and Innovation Programme (Grant Agreement No. 741087).

Publisher Copyright:
© 2022 The Author(s). Published by IOP Publishing Ltd.

Keywords

  • agent-based modelling
  • climate policy
  • social cost of carbon

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