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This paper analyses the role that companion policies have had in the reduction of emissions regulated by the EU Emissions Trading System (EU ETS) and the related policy interactions, with a view to identifying relevant insights for China's forthcoming Emissions Trading System (ETS). The investigation rests on: (a) the observation of the EU's and China's ETSs and policy mixes; (b) economic theory concerning companion policies and ETS design; and (c) empirical ex-post evidence from the EU ETS. Three main conclusions emerge from the analysis. First, China's ETS, while not imposing a fixed cap on emissions, will not be immune to waterbed effects of companion policies. Second, the European experience stresses the importance of making explicit the objectives pursued by companion policies, and of balancing policies for innovation and policies for adoption of low-carbon technologies. Third, in the presence of a major market surplus, only permanent adjustments to allowance supply can be effective in raising prices.

Individuals follow different rules for action: they react swiftly, grasping the short-term advantages in sight, or they waste cognitive resources to complete otherwise easy tasks, but they are able to plan ahead future complex decisions. Scholars from different disciplines studied the conditions under which either decision rule may enhance the fitness of its adopters, with a focus on the environmental features. However, we here propose that a crucial feature of the evolution of populations and their decision rules is rather inter-group interactions. Indeed, we study what happens when two groups support different decision rules, encapsulated in narratives, and their populations interact with each other. In particular, we assume that the payoff of each rule depends on the share of both social groups which adopt such rules. We then describe the most salient dynamics scenarios and identify the conditions which lead to chaotic dynamics and multistability regimes.

As the Intergovernmental Panel on Climate Change (2018) testifies, the world is a long way from halting climate change, let alone reverting it. The existence of adaptation and mitigation technologies did not prove sufficient, their adoption being respectively faulted or hindered by the presence of externalities. In this work, we study how externalities, whether positive or negative, lead the system away from Pareto-dominant (social optimum) states, towards Pareto-dominated ones. We show that adoption gaps, i.e. differences between socially optimum vs current adoption shares, of both (mal)adaptation and mitigation technologies are caused by the externalities emitted. In particular, over-adoption may occur for maladaptive technologies, whereas under-adoption may occur in case of mitigation. We employ a model with two regions at different stages of development and also derive relevant considerations on possible counterproductive effects of green policies and environmental dumping.

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