To create an agent-based model to simulate the allocation and trading of carbon quotas. The model should be able to answer the question: How does the initial allocation of carbon quotas and the rules governing their trade influence the distribution and total release of carbon?
You will use CDM-S as the base for building the system, including the extension for modularization described here. Your role in using this methodology is to expand each of its steps (using this wiki) with:
Additionally, you must invent a new methodology related to “unit testing” of subsets/sub-clusters of modules that tests not only their “clean room” operation but also tests their robustness against random, irrational and unpredictable behaviors in the surrounding system.
Use this wiki to create a timeline with tasks and names; the link is here.
You must record your contributions towards this project on this wiki; the links to your individual pages will be sent in email (access granted to only the individual and the instructors).
The model should include the following modules:
Government allocates free quotas for each sector. Government change rules along two dimensions:
Each sector has a profit function for each period:
Profit = (Revenues pr. unit – Cost pr. unit ) * Number of units sold – Fixed costs.
Fixed costs and revenues pr. unit are fixed but depend on sector. Production capacity is fixed during the simulation. Demand is set for the whole simulation (e.g. kept constant).
Cost pr. unit is calculated in the following way:
Cost pr. unit = Cost of inputs + Carbon release pr. unit * Cost of Carbon
Cost of inputs and carbon release pr. unit is specific for the sector, but fixed for the whole simulation (we might want to change carbon release pr. unit in each sector to reflect technology development). Sector is not allowed to produce units unless it has quota for it. Cost of Carbon is the average price paid for carbon owned.
Sector will place bids for quota if shortage is anticipated. Shortage is anticipated if:
Max bid price is set to the cost of carbon which gives zero profit based on number of units and revenues from the previous period. Actual bid price is adjusted to the market, i.e. transaction price in the last period and sucess in buying. Quantity is set equal to shortage.
Sector will place asks for quota if excess is anticipated. Excess is anticipated if:
Min ask price is set to average price of carbon owned. Actual ask price is adjusted to market, i.e. transaction price in the last period and success in selling. Quantity is set equal to excess. Average price of carbon owned takes into account both buying and selling of quotas.
The following should be monitored for each sector in each period:
A double auction is a process in which buyers and sellers can freely enter limit orders (bids or asks) and accept bids or asks entered by others. It is the organization used in major exchange markets around the world trading stocks, commodities or currencies.
Use the following specifications when designing the market:
Use the following information to monitor the results during each time period:
The simulation should run for a single allocation period (e.g. 2011-2020). The smallest time period should be one week.
Starting conditions should be set to approximate real life conditions. Carbon release pr unit should be used to adjust scales across different sectors. The sectors we want to use are:
Following variables should be used to evaluate and compare different simulation.
Different simulations should be performed for all combination of government rules for trade for different quantities of freely allocated quotas.