Marginal abatement cost

Abatement cost is the cost of reducing environmental negatives such as pollution. Marginal cost is an economic concept that measures the cost of an additional unit. The marginal abatement cost, in general, measures the cost of reducing one more unit of pollution.

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Although marginal abatement costs can be negative, such as when the low carbon option is cheaper than the business-as-usual option, marginal abatement costs often rise steeply as more pollution is reduced.

Marginal abatement costs are typically used on a marginal abatement cost curve, which shows the marginal cost of additional reductions in pollution.

Usage

Carbon traders use marginal abatement cost curves to derive the supply function for modelling carbon price fundamentals. Power companies may employ marginal abatement cost curves to guide their decisions about long-term capital investment strategies to select among a variety of efficiency and generation options. Economists have used marginal abatement cost curves to explain the economics of interregional carbon trading.[1] Policy-makers use marginal abatement cost curves as merit order curves, to analyze how much abatement can be done in an economy at what cost, and where policy should be directed to achieve the emission reductions.

However, marginal abatement cost curves should not be used as abatement supply curves (or merit order curves) to decide which measures to implement in order to achieve a given emission-reduction target. Indeed, the options they list would take decades to implement, and it may be optimal to implement expensive but high-potential measures before introducing cheaper measures.[2]

Criticism

The way that marginal abatement cost curves are usually built has been criticized for lack of transparency and the poor treatment it makes of uncertainty, inter-temporal dynamics, interactions between sectors and ancillary benefits.[3] There is also concern regarding the biased ranking that occurs if some included options have negative costs. [4][5][6][7]

Examples of existing marginal abatement cost curves

Various economists, research organizations, and consultancies have produced marginal abatement cost curves. Bloomberg New Energy Finance[8] and McKinsey & Company[9] have produced economy wide analyses on greenhouse gas emissions reductions for the United States. ICF International[10] produced a California specific curve following the Global Warming Solutions Act of 2006 legislation as have Sweeney and Weyant.[11]

The Wuppertal Institute for Climate, Environment and Energy produced several marginal abatement cost curves for Germany (also called Cost Potential Curves), depending on the perspective (end-user, utilities, society).[12]

The US Environmental Protection Agency has done work on a marginal abatement cost curve for non-carbon dioxide emissions such as methane, N2O, and hydrofluorocarbons.[13] Enerdata and Laboratoire d'Economie de la Production et de l'Intégration-Le Centre national de la recherche scientifique (France) produce marginal abatement cost curves with the Prospective Outlook on Long-term Energy Systems (POLES) model for the 6 Kyoto Protocol gases.[14] These curves have been used for various public and private actors either to assess carbon policies [15] or through the use of a carbon market analysis tool.[16]

The World Bank 2013 low-carbon energy development plan for Nigeria,[17] prepared jointly with the World Bank, utilizes marginal abatement cost curves created in Analytica.[18]

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See also

References
  1. "Ellerman, A.D. and Decaux, A., Analysis of post-Kyoto CO
    2    } emissions trading using marginal abatement curves, 1998"     (PDF). Retrieved 2013-03-08.
  2. Vogt-Schilb, Adrien; Hallegatte, Stéphane (2014). "Vogt-Schilb, A. and Hallegatte, S., 2014. Marginal abatement cost curves and the optimal timing of mitigation measures". Energy Policy. 66: 645–653. doi:10.1016/j.enpol.2013.11.045. hdl:10986/16379.
  3. Kesicki, Fabian; Ekins, Paul (2012). "Marginal abatement cost curves: a call for caution". Climate Policy. 12 (2): 219–236. doi:10.1080/14693062.2011.582347.
  4. Levihn, Fabian (2016-11-01). "On the problem of optimizing through least cost per unit, when costs are negative: Implications for cost curves and the definition of economic efficiency". Energy. 114: 1155–1163. doi:10.1016/j.energy.2016.08.089.
  5. Taylor, Simon (2012-09-01). "The ranking of negative-cost emissions reduction measures". Energy Policy. Special Section: Frontiers of Sustainability. 48: 430–438. CiteSeerX 10.1.1.1030.9697. doi:10.1016/j.enpol.2012.05.071.
  6. Ward, D. J. (2014-10-01). "The failure of marginal abatement cost curves in optimising a transition to a low carbon energy supply". Energy Policy. 73: 820–822. doi:10.1016/j.enpol.2014.03.008.
  7. Wallis, Max (1992). "Greenhouse ranking of gas-fuelling". Energy Policy. 20 (2): 174–176. doi:10.1016/0301-4215(92)90112-f.
  8. http://carbon.newenergyfinance.com/download.php?n=BBNEF_CarbonMarkets_NAmerica_RN_2010_01_RN_USMACC.pdf&f=fileName&t=NCF_downloads Bloomberg New Energy Finance, US Marginal Abatement Cost Curve, 2010]
  9. "McKinsey & Company, Reducing US greenhouse gas emissions: how much at what cost? 2007". Archived from the original on 2010-02-27. Retrieved 2010-02-09.
  10. "ICF International, Emission reduction opportunities for non-CO
    2    } greenhouse gases in California, 2005"     (PDF). Retrieved 2013-03-08.
  11. Sweeney, J. and Weyant, J., Analysis of measures to meet the requirements of California’s Assembly Bill 32, 2008
  12. Options and Potentials for Energy End-use Efficiency and Energy Services, Wuppertal Institute, 2006
  13. "EPA, Global mitigation of non-CO
    2    } greenhouse gases, 2006"    . Epa.gov. 2010-11-17. Retrieved 2013-03-08.
  14. "Enerdata, Production of marginal abatement cost curves by sector and by country, 2015". Enerdata.net. Retrieved 2015-12-01.
  15. Impacts of Multi-gas Strategies for Greenhouse Gas Emissions Abatement: Insights from a Partial Equilibirum Model, Criqui P., Russ P., Deybe D., in The Energy Journal, Special Issue: Multi-Greenhouse Gas Mitigation and Climate Policy, 2007
  16. "Enerdata, Use of MACCs for carbon markets analysis, 2015". Enerdata.net. Retrieved 2015-12-01.
  17. Low-Carbon Development: Opportunities for Nigeria, Editors: Raffaello Cervigni, John Allen Rogers, and Max Henrion, No 15812 in World Bank Publications, January 2013. 186p.
  18. "Marginal Abatement". Lumina Decision Systems. Archived from the original on 2015-04-04. Retrieved 2015-01-27.
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