ERC Advanced Grant project EVOCLIM

Project description

The project will develop a new set of models to assess the performance of policy instruments – such as various carbon pricing and information provision instruments – in terms of employment, equity and CO2 emissions. Currently, distinct climate policies are studied with incomparable approaches involving inconsistent criteria and impacts. EVOCLIM aims to unite core features of such approaches within a behavioral-evolutionary framework, blending insights from behavioral, environmental and evolutionary economics. The key novelty is linking climate policies to populations of heterogeneous consumers and producers characterized by bounded rationality and social interactions. This offers three advantages: one can evaluate the effectiveness of very different climate policy instruments in a consistent and comparative way; one can examine policy mixes by considering interaction between instruments from a behavioral as well as systemic perspective; and one can simultaneously assess policy impacts mediated by markets and social networks. 

EVOCLIM will be guided by the following goals: (i) test the robustness of insights on carbon pricing from benchmark approaches that assume representative, rational agents; (ii) test contested views on joint employment-climate effects of shifting taxes from labor to carbon; (iii) examine various instruments of information provision under distinct assumptions about social preferences, interactions and networks; (iv) study regulation of commercial advertising as a climate policy option in the context of status-seeking and high-carbon consumption; and (v) explore behavioral roots of energy/carbon rebound. The research has a general, conceptual-theoretical rather than a particular country focus. Given the complexity of the developed models, it involves numerical analyses with parameter values in realistic ranges, partly supported by insights from questionnaire-based surveys among consumers and firms. One survey examines information provision instruments and social interaction channels, while another assesses behavioral foundations of rebound.

Broader scientific meaning of the project

EVOCLIM is ground-breaking in that it develops the first systematic program on behavioral-evolutionary thinking about climate policy. This creates bridges between environmental economics, behavioral economics, evolutionary economics and modelling, policy sciences, sociology and environmental psychology. It will support a consistent comparison of the full range of regulatory (both pricing and standard-setting) and information-provisioning instruments in climate policy. The project can further provide useful methodological lessons for other areas of public policy from an evolutionary systems angle. In addition, it may broaden the scope of evolutionary economics which so far has paid scant attention to environmental and climate policies. In particular, it contributes to a wave of macro-oriented evolutionary, multi-agent models, which serve as an alternative to both general equilibrium and mainstream macroeconomic models in public policy and economic analyses. The approach will further contribute to the field of energy/sustainability transition studies.

Organization

The organization of EVOCLIM in terms of sub-projects (SPs) is shown in the scheme below. The project will fund three postdoc positions (two of 5 years in SP1 and SP5, and one of 3 years in SP4) and four PhD researchers (each 4 years, in SP2 and SP3). Cooperation and synergies between the sub-projects will be secured by the two integrative sub-projects SP1 and SP5. The first of these develops the framework and basic models, and can be seen to assure consistency and synergy of SPs at a methodological level. Next, SP5 guides the survey questionnaires and integrates the policy insights produced by the other SPs, on the basis of which it further develops and analyses policy packages. 

Details about the five sub-projects

Specific research questions, addressing general issues, tangible instruments of climate policy, and policy packages, are addressed in 5 sub-projects (SPs) (visualized in the scheme):

1. The first, overarching, integrative sub-project addresses the question: How can we best model the relationship between climate policies, markets, social interactions, innovation-and-diffusion processes, bounded rationality, and heterogeneous agents? This SP aims to develop the general framework, learn from non-environmental macro-evolutionary models, traditional market equilibrium models, climate impact assessment studies and sustainability transition models. It undertakes general, theoretical analyses with these models to understand their structure and behavior, and supports particular elaborations and policy analyses in the other SPs. SP1 is executed by a postdoc researcher who interacts with the other SPs to assure a framework that balances their needs and requests.

2. The second SP examines how carbon pricing, considered by many as a core component of climate policy, functions under conditions of bounded rationality of polluters. Two main questions are addressed in two sub-projects: (2a) What are the differences in performance of carbon pricing under various types of bounded rationality of consumers and firms? This will address carbon taxes and emissions trading, to examine which is more effective under certain types of bounded rationality. The second question is: (2b) what are the innovation, employment and climate impacts of shifting taxes from labor to carbon under bounded rationality? This has been addressed with rational-agent equilibrium models in the “double dividend” literature. SP2b will assess the robustness of its findings with respect to behavioral assumptions by adapting the multi-agent models of SP1 to these questions. In particular, SP2 will assess the extent to which rational-agent studies overestimate the effectiveness and efficiency of carbon pricing. SP2a&b are tackled by 2 closely cooperating PhD students.

3. The third SP examines how information provision strategies in climate policy – like eco-labels, green awards, information campaigns, traditional media, and Internet-based social media – perform in a system characterized by bounded rationality, market processes and social interactions. Two sub-projects address two main questions associated with particular social interactions: (3a) How do different information policies compare in terms of employing imitation behavior, social norms and information diffusion to effectively spread climate-relevant information and exemplary conducts? This involves testing various features of information policies, such as appropriate framing of information provision or using “role models”. The second question is: (3b) How does the interaction of commercial advertising and social comparison driven by status-seeking drive the consumption of certain carbon-intensive goods and services, like cars and holidays, and what does this mean for policy design aimed at influencing such consumption? This involves an analysis of information provision instruments interacting with both carbon pricing and advertising. Modelling in SP3a&b is undertaken by 2 PhD students. They will jointly perform a questionnaire survey to examine how opinions on climate policy, climate relevant behaviors, and social interactions are connected.

4. The fourth SP addresses the behavioral foundations of energy/carbon rebound. It is motivated by the research question: How does bounded rationality of individuals/households and firms contribute to rebound, and how does this affect the estimates of different types of rebound as well as the formulation of “rebound policy”? This involves examining the role of different types of bounded rationality, such as myopia, habits, wrong goals, and connecting these to important rebound channels, like intensity effect, market effects, technological diffusion, etc. The project integrates these elements into a behavioral-evolutionary model to address this issue, which is intended to provide better insight into the relative performance of climate policy instruments on effectiveness, in terms of controlling carbon rebound. In addition, a questionnaire survey is performed to obtain empirical information about behavioral factors underlying rebound. This research is executed by a postdoc researcher.

5. The final SP synthesizes SP2-4 and provides an interface with other disciplines offering insights on climate policy, aimed at answering the question: Which policy packages combine equity, employment and climate goals under bounded rationality and are successful in escaping carbon lock-in? While SPs 2-4 address the performance of single instruments and the comparison of these, here combinations of instruments will be systematically studied, based on close interaction with the other SPs. Instrument complementarity and interaction is an incompletely solved issue in climate policy studies, and has not been systematically addressed in the context of bounded rationality and other-regarding preferences. Given its ambition and integrative character, SP5 is executed by a postdoc researcher.

Project team:

For more information, contact Prof. Jeroen van den Bergh via jeroen.bergh@uab.es