Opinion dynamics meet agent-based climate economics: An integrated analysis of carbon taxation

Abstract

We introduce an integrated approach, blending Opinion Dynamics with a Macroeconomic Agent-Based Model (OD-MABM) to explore the co-evolution of climate change mitigation policy and public support. The OD-MABM links a novel opinion dynamics model that is calibrated for European countries using survey data to the Dystopian Schumpeter meeting Keynes model (DSK). Opinion dynamics regarding climate policy arise from complex interactions among social, political, economic and climate systems where a household’s opinion is affected by individual economic conditions, perception of climate change, industry-led (dis-)information and social influence. We examine 133 policy pathways in the EU, integrating various carbon tax schemes and revenue recycling mechanisms. Our findings reveal that effective carbon tax policies initially lead to a decline in public support due to substantial macroeconomic transition costs, threatening political feasibility. However, they also pave the way for a positive social tipping point in the future. This shift stems from the evolving economic and political influence associated with the fossil fuel-based industry, which gradually diminishes as the transition unfolds. Second, hybrid revenue recycling strategies that combine green subsidies with climate dividends successfully address this intertemporal trade-off in our model by accelerating the transition and mitigating its economic fallout, thus broadening public support.