Modeling and computation of mean field game with compound carbon abatement mechanisms

Abstract

<p style='text-indent:20px;'>In this paper, we present a mean field game to model the impact of the coexistence mechanism of carbon tax and carbon trading (we call it compound carbon abatement mechanism) on the production behaviors for a large number of producers. The game's equilibrium can be presented by a system which is composed of a forward Kolmogorov equation and a backward Hamilton-Jacobi-Bellman (HJB) partial differential equation. An implicit and fractional step finite difference method is proposed to discretize the resulting partial differential equations, and a strictly positive solution is obtained for a non-negative initial data. The efficiency and the usefulness of this method are illustrated through the numerical experiments. The sensitivity analysis of the parameters is also carried out. The results show that an agent under concentrated carbon emissions tends to choose emission levels different from other agents, and the choices of agents with uniformly distributed emission level will be similar to their initial distribution. Finally, we find that for the compound carbon abatement mechanism carbon tax has a greater impact on the permitted emission rights than carbon trading price does, while carbon trading price has a greater impact on carbon emissions than carbon tax.</p>