COMPENDIUM

Sidnei Caria Jr., Tabiner Domingues Marques and Marcelo C. Pereira | Green and resilient economics

Over the past two decades, carbon pricing has been the primary tool for policymakers to try to reduce greenhouse gas (GHG) emissions and accelerate the green energy transition (Santos, 2022). A critical assessment of its policy potential and limitations is essential for advancing to a low-carbon economy. Despite the growing governmental and academic attention given to climate change mitigation, engagement of the private sector in the green-energy transition remains insufficient, with global investments falling short of the required levels (Lamperti et al., 2019). In free-market economies, reducing GHG emissions is often a low priority for profit-driven entities, particularly as sustainable energy technologies have yet to match the economies of scale offered by fossil alternatives.

Mobilizing institutions and businesses to accelerate the transition is indispensable for achieving global environmental objectives, such as those outlined in the Paris Agreement, which seeks to limit global temperature rise and mitigate its adverse effects.
The challenges in advancing the green-energy transition are also compounded by policymakers’ limited understanding of the real-world impacts of their industrial and environmental policies. This is a knowledge gap caused largely by the structural limitations of current modeling frameworks.

Traditional assessment models often rely on oversimplified assumptions that fail to capture the fundamental uncertainties of technological change, such as those inherent to the ongoing energy transition (Farmer et al., 2015). To more accurately evaluate the policy effects over long-term horizons and across economic and social dimensions, it is crucial to develop models that endogenously incorporate the inherent complexities. Modeling must move beyond unrealistic assumptions—like long-term equilibrium, incremental technological change, or perfect information—which often neglect critical factors such as agent heterogeneity, radical innovation, and bounded rationality. Even if these limitations are accepted as “reasonable simplifications”, current models remain inadequate for addressing many pressing policy questions. Consequently, there is a growing need for a new generation of models capable of providing actionable insights, such as how to harness emerging technologies for spurring development, or to identify adequate policy mixes for decarbonizing while creating quality jobs.

This paper employs a data-driven, agent-based model (ABM), calibrated to replicate the long-term dynamics of the United States economy to evaluate these issues.

Full article: https://greenandresilienteconomics.org/wp-content/uploads/2025/11/Are_carbon_pricing_policies_enough.pdf