Multi-agent simulation of the effects of Japanese electricity market policies on the low-carbon transition

Market policies play a crucial role in facilitating the transition to a low-carbon society by restructuring the electricity market and influencing stakeholder behavior. Policymakers are concerned with how to implement these policies in terms of their intensity, combination, and timing. However, existing research lacks effective simulation tools that can accurately capture the impact of market policies on individual decision-making in the electricity sector, which is essential to represent the complex impacts of the policy mix. To address this gap, we present an agent-based model for analyzing the Low Carbon Transition (LCT) in the electricity sector. Using the Japanese electricity sector as a case study, we design various subsidies, incentives, and liberalization policy scenarios to evaluate the role of market policies in facilitating LCT. We observed that, within the Feed-in Premium (FIP) system, above a subsidy threshold of 2 JPY/kWh or 20% of the electricity cost leads to overcompensation, resulting in a stagnation of LCT promotion. To address this stagnation, it is imperative to not only enhance demand-side incentives, such as carbon taxes but also expedite the advancement of the free trade market to prevent market-induced stagnation. A synergistic implementation of these three policies is crucial for the most efficient progression of LCT.