In our last session of the Energy Game, players responded to a higher uncertainty about demand, and to the introduction of fossil-fuel power plants, with much higher production capacities:

Before the uncertainty increase, the average production capacity of a player was about 600 GWh/Rnd

Here are a few energy fleet the year after, following an increased uncertainty (same expectations about demand but with a higher variation coefficient: 0.3 instead of 0.15) and the introduction of fossil-fuel power plants.

On most markets, total installed capacity exceeds 1400GWh/Round, even though the probability to have a shortage with that capacity is only about 0.6%.

 

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In the last airECONsim session at ENAC, some of the teams decided to merge with robot airlines, and chose to keep a separate control over them.

This allowed them to build differentiated offers for customers. On this route, “Air Albi” operates flights with high comfort, while the acquired firm “robot 5 – Air Albi” operates cheap flights with very little space between seats.

 

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New graph for displaying uniform auctions’ results  (and to help players analyze possible outcomes on the wholesale electricity market in the Energy Game)

 

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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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These pictures illustrate the evolution of CO2 emissions in one of the games of our last session at Mines Albi and Dauphine University.

Each line corresponds to a different market with specific environmental policies. The “light blue” line is a benchmark market over which there is no environmental policy. Without getting into details, from year 6, there are tradable emission permits on the three other markets and the cap (the total number of permits to be allocated) decreases by 80% every year (changes from one market to another bear on allocation specifications such as whether or nor banking is allowed, are the permits sold through auction or allocated for free, on the basis of past production or pollution, or else…)

In this first game, all the three policies seem to work pretty well. Still, something interesting is already visible in year 5 (the year just before the introduction of CO2 permits): emissions increase (more or less) in all three markets.

So, what happens in year 5?

Players are aware that permits are to be introduced the year after, and that the allocation in year 6 will be based on historical data (that + other info about the future of the markets):

• On the brown and purple markets, players expect year 6 permits to be granted in proportion to their emissions for year 5.
• On the red market, players expect year 6 permits to be granted in proportion to year 5 sales, but with a global and predefined cap.

So, it is no big surprise to see emissions increasing in year 5 on brown and purple markets. The increase on the red market does not come from a direct incentive to emit more CO2, but still occurs, as a side-product of the incentive to sell more (that, plus a correction of a mistake during year 4).

In fact, this is much more spectacular when you look at the other game of the session: Here the emissions in year 5 were so important that even in year 8 or 9, global emissions in the brown and purple markets were not so different from the benchmark level. The irony of the story is that the player who was the main contributor to this, found himself with many emissions permits, but with permits that were nearly worthless because of their number (later in the game, the permits were partly allocated on the basis of historical allocations and partly through auctions. And enough permits were granted through auctions to make them easily available to all the firms on the market)

 

In the next sessions, we will probably also introduce a “better-designed” allocation scheme. Emission trading schemes can perform quite well when they are well designed, but the devil lies in the details (in particular, because of expectations and governments’ commitment issues)

 

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In this example, taken from the last session at Mines Albi, 108 permits are to be auctioned through a uniform auction

Team 7 decides that above €160, it prefers to sell its permits. Equilibrium is reached at €300. All offers above €300 are treated in priority, so Team 8 only receives 3 permits out of the 30 it required.

 

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Useful Data about demand for our market games is available in an excel file: http://economics-games.com/resources/site/doc/marketGamesDemand.xlsx (be careful, this is data for the 5 microeconomics games that are available on economics-games.com, not games from aireconsim.com)
Theoretical debriefings can now include numerical activities illustrating decreasing marginal revenue, monopoly pricing, short-run unconstrained monopoly price vs long-run monopoly price, etc…

More info (such as demand data in the oligopoly case) is available upon request.

 

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Here is a short guide about how to use our 5 market games.

This has been written with the idea of illustrating microeconomics, industrial organization or environmental economics courses, but the games can also be used in more “general” economics courses.

 

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