Emissions Permits Auctions: an ABM Analysis 1 Emissions Permits Auctions: an ABM Analysis Marta Posada, Cesáreo Hernández, Adolfo López-Paredes 1 University of Valladolid. INSISOC, Spain {posada, cesareo}@eis.uva.es http://www.insisoc.org 2 University of Valladolid. INSISOC, Spain {adlo}@insisoc.org Abstract. Since the “Kyoto Protocol” a milestone in worldwide efforts towards global warming abatement, many countries are due to design a proper trading of GHG emissions permits. Thus the analysis of the auction institution becomes a major issue. There have been a substantial analytical effort to understand the EPA emissions trading mechanism with very poor results even under extreme simplifying assumptions. EE has revealed why the EPA was to end up as a fail- ure. Why not to take a further step and experiment with soft agents to engineer the appropriate trading system? After showing that we could have advanced the EPA’s failure from an ABM approach we argue that the CDA is a suitable choice for the trading permits. We analyse the CDA under different strategic behaviour of buyers and sellers using the same ABM approach, extending pre- vious works with evolutionary adaptation and learning. 1 Introduction The Kyoto Protocol (1997), ratified later on by the EU, Japan and other countries set a target for collective GreenHouse Gas (GHG) emissions, which required a reduction of total emissions of 5,2 % below 1990 levels by 2010. Of course a major issue was that for the global reduction to be efficient the levels for each country should be at the same marginal reduction costs. This was unacceptable for some countries like the USA, and brings up the typical problems from asymmetric information. A possible way to avoid free riding is to allow GHG emissions to be traded: “emissions trading”. Although the option between a piguvian tax and emissions trading is always an open choice, (and this paper is not the proper place for arguments) many countries including Spain have decided to initiate an emission trading market. In the case of Spain, at the time of writing up this paper, the Socialist Government just approved the National Plan of Emissions Permits for the period 2005-2007. Germany has a tax programme, and the U.K adopted a mixed of tax and trading control. Many countries have now to decide about the proper market design. The models of exchange traditionally used by economist in general equilibrium theory are simplified for the purposes of analytical tractability to the extreme that they are of scant relevance to guide the designer of real-world exchanges. Among other