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The co-evolution of climate policy and investments in electricity markets: Simulating agent dynamics in UK, German and Italian electricity sectors

Barazza, E; Strachan, N; (2020) The co-evolution of climate policy and investments in electricity markets: Simulating agent dynamics in UK, German and Italian electricity sectors. Energy Research and Social Science , 65 , Article 101458. 10.1016/j.erss.2020.101458. (In press). Green open access

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Abstract

Achieving electricity sector transitions consistent with stringent climate change mitigation under the Paris Agreement requires a careful understanding both of the coordinating role of national governments and of its interactions with the heterogeneous market players who will make the low-carbon investments in the electricity sector. However, traditional energy models and scenarios generally assume exogenous policy targets and fail to capture this co-evolution between policy-makers and heterogeneous private and public investors. This paper uses BRAIN-Energy, a novel agent-based model of investment in electricity generation to simulate and contrast government and investor dynamics in the transition pathways of the UK, German and Italian electricity sectors. Key findings show that a successful transition – which achieves the energy policy “trilemma” (low carbon, secure, affordable) – requires the co-evolution of the policy dimension (strong and frequently updatable CO2 price, renewable subsidies and capacity market) with the strategies of the heterogeneous market players. If this dynamic balance is maintained then incentives are politically feasible and suppliers learn and evolve (in what we term a virtuous cycle). If either the incentives are too weak to drive learning or too expensive so the policy regime collapses, then the transition fails on one of its key dimensions (in what we term a vicious cycle). Getting this balance right is harder in risky markets that also have players with more pronounced bounded rationality and path dependence in how they make investments.

Type: Article
Title: The co-evolution of climate policy and investments in electricity markets: Simulating agent dynamics in UK, German and Italian electricity sectors
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.erss.2020.101458
Publisher version: https://doi.org/10.1016/j.erss.2020.101458
Language: English
Additional information: agent-based modelling; co-evolution; heterogeneity of actors; governance; electricity; investment decisions
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources
URI: https://discovery.ucl.ac.uk/id/eprint/10093280
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