Regulation at the source? Comparing upstream and downstream climate policies

Climate policies can be applied either upstream, where fossil fuels are extracted, or downstream, emissions generated. Specific policy instruments defined for level, and take the form of a price signal such as through tax, quantity limit direct regulation permit market. In this study, we present an agent-based model to compare performance these different levels. Since coverage is often limited, i.e. not all firms being under regulator’s control, also examine impact incomplete on relative performance. Our analysis shows that only upstream leads increase in fuel prices, which benefitial limited it affects directly affected by instruments; prices quantity-based decline after initial peak, stabilizing at lower level than tax; more efficient when upstream.