Dr Lilit Popoyan - Prevention first vs. cap-and-trade policies in an agent-based integrated assessment model with GHG emissions

In this work, we ask whether tradable emissions permits, based on the cap-and-trade principle, provide better climate change and economic projections than alternative regulations for GHG emissions, such as operational permits, which are commonly used to mitigate non-GHG emissions (prevention first principle). Towards this goal, we simulate climate and the economy through a new version of the Dystopian Schumpeter meeting Keynes (DSK) model, extended to include an emission trading system (ETS) and operational permit systems. We show that climatic and economic projections in an ETS scenario need not be superior to those in an operational permit scenario. Which system delivers more encouraging projections on temperature anomalies, the green transition, and economic dynamics depends on institutional details, such as the set of firms for which permits are mandatory; the regulatory requirement of corrective measures; the magnitude of penalties; the stringency of the ETS. An ETS with a declining number of permits emerges as the best-performing system in terms of macroeconomic, microeconomic, and climate outcomes. A system of operational permits mandatory only for large firms (centralised permits) ranks as the second-best system, provided that the regulator imposes corrective measures regarding R&D expenses and machinery replacement.

About the speaker:

Lilit Popoyan is a Lecturer in Business Analytics & Innovation at the School of Business and Management, Queen Mary University of London. Her research focuses on policy-relevant quantitative analysis at the intersection of macroeconomic policy, financial regulation, financial stability, sustainable finance and climate change, production networks, and macroeconomic dynamics. She is also an Associate Researcher at the Sant’Anna School of Advanced Studies and a Lecturer in Money and Banking at NYU’s Study Abroad Programme in Florence.

Please note this event will be livestreamed but not recorded.