The Kyoto Protocol promoted by the UNFCCC (UN Framework Convention on Climate Change) represents an attempt to reduce emissions of the 6 greenhouse gases (GHGs): chiefly CO2 and methane.

Usually, three types of approaches are considered to reduce the emission of GHGs, in particular carbon dioxide. They are:

• Cap and trade approaches

• Taxation approaches

• Hybrid approaches

Cap and trade is an administrative approach. A central authority (government or transnational institution) sets a limit (cap) on the amount of emissions that can be made. Institutions (companies or countries) have the right to produce emissions up to a predetermined amount (credit). Those that need to emit more than they are allowed to must buy credits to other institutions. They must trade. The Kyoto Protocol establishes a system inspired in this approach.

Taxation on carbon emissions works just like any other tax. Carbon tax can be applied (paid) early in the process, at the point where fuel are extracted and sold. Suppliers and processors can pass along the cost of the tax, according to market conditions, until the end-user of the products.

Quantity instruments (like cap and trade) have the advantage of fixing a limit (at least in theory) on the emissions that can be made, but have the disadvantage of the uncertainty of the cost of compliance (not known in advance).

Price instruments, like taxing emissions, fix the price of emissions but do not establish a limit. Emission level is allowed to vary according to economic activity. Taxation supporters mention that this is a much easier system to implement. Cap and trade depends on lengthy negotiation processes. Besides, taxation is a much more transparent mechanism, which is much more likely to elicit public support.

The hybrid approach, known as the safety valve, is a cap and trade system with a limit on the permit prices. Emitters can also buy permits from the government at a specified trigger price. The balance between the value of the trigger price and the number of permits available can make this approach closer to either one of the previous two.

In this paper we address the theoretical problem of comparing these approaches. We use societies of heterogeneous agents in a simplified shared environment and systematically explore through the space of mechanisms, using multi-agent-based simulation to propose policy-making recommendations.

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