Modelling the impacts of a national carbon tax in a country with inhomogeneous regional development: an actor-based system-dynamic approach

We present a family of simple globally aggregated and regionalized actor-based systemdynamics Integrated Assessment models (IAMs). We first develop a global IAM in which both fossil-fuel-based capital and renewable-energy-based capital determine the production function. A business-as-usual scenario (no mitigation policy) is compared with various mitigation scenarios based on different global carbon tax rates. The basic model is then extended to a regionalized IAM consisting of a large country composed of two regions characterized by different climates and levels of economic development coupled to large residual “country” representing the “rest of the world”. A harmonized carbon tax is imposed in both regions of the country and as well as in the rest of the world. We explore to which extent inter-regional disparities in economic development and climate change impacts can be alleviated by a national government through the inter-regional transfer of income from carbon tax revenues.