These graphs illustrate the evolution of prices, produced quantities and used technologies in the last session of “The Carbon Game”, at Ecole Polytechnique.

Each line corresponds to a different market with a specific environmental policy.

On “purple” markets, from year 2, fixed (non tradable) CO2 emission permits (quotas) were granted to the firms, and each firm had the same number of permits. On “green” markets, from year 2, emission permits were allocated in proportion to previous year’s sales (but the total amount of permits itself was fixed and independant of the firms’ actions). Banking permits from one year to the next was possible on green markets (grandfathering), but not on purple markets (fixed quotas). From year 4, the amount of quotas decreased by 20% every year.

On each market, firms could choose between 2 or 3 different technologies, some emitting less CO2 but being more costly.

The general trend on each market over the whole game was not very surprising, at least for the purple markets: Average prices tended to increase, productions tended to decrease, and more and more firms switched to the more ecological technologies as allocated permits got scarcer. More surprising maybe, the fact that nearly no firm ever used the option to bank permits on the purple markets (but it was used on other markets, involving auctions).

Also interesting and less intuitive,  in year 3, production soared and prices decreased on 2 markets. At this point, many of the firms switched at the same time to less polluting technologies, hence relaxing the capacity constraints created by the permits. And more production meant more competition in the price setting stage and eventually, lower prices (in spite of higher costs). This may seem a paradox, since less permits resulted here in lower prices paid by the consumers, but it was only a temporary phenomenon, due to discontinuous technology options.

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