Marginal Abatement Costs and Marginal Welfare Costs for Greenhouse Gas Emissions Reductions: Results from the EPPA Model

By Jennifer Morris, S. Paltsev, J. Reilly. Environmental Modelling and Assessment, 2011

214 citations recorded by the source corpus.

Marginal abatement cost (MAC) curves, relationships between tonnes of emissions abated and the CO2 (or greenhouse gas (GHG)) price, have been widely used as pedagogic devices to illustrate simple economic concepts such as the benefits of emissions trading. They have also been used to produce reduced-form models to examine situations where solving the more complex model underlying the MAC is difficult. Some important issues arise in such applications: (1) Are MAC relationships independent of what happens in other regions?, (2) are MACs stable through time regardless of what policies have been implemented in the past?, and (3) can one approximate welfare costs from MACs? This paper explores the basic characteristics of MAC and marginal welfare cost (MWC) curves, deriving them using the MIT Emissions Prediction and Policy Analysis model. We find that, depending on the method used to construct them, MACs are affected by policies abroad. They are also dependent on policies in place in the past and depend on whether they are CO2-only or include all GHGs. Further, we find that MACs are, in general, not closely related to MWCs and therefore should not be used to derive estimates of welfare change. We also show that, as commonly constructed, MACs may be unreliable in replicating results of the parent model when used to simulate GHG policies. This is especially true if the policy simulations differ from the conditions under which the MACs were simulated.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/fb7fda40180621b70ae7989fea9f4a7f2d7ba1ad

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In Economics and Econometrics

1. Limin Du
2. Aoife Hanley
3. Chu Wei
4. Paul Ekins
5. Fabian Kesicki
6. David I. Stern
7. Karsten Olsen
8. S. Sorrell

In Renewable Energy, Sustainability and the Environment

1. Limin Du
2. Chu Wei
3. Aoife Hanley
4. Paul Ekins
5. Fabian Kesicki
6. F. Polzin

Citations in the corpus

• Marginal abatement cost curves: a call for caution (2011, background): “This extends to interdependencies and interactions CLIMATE POLICY between the uncertainties.”
• The Optimal Share of Variable Renewables: How the Variability of Wind and Solar Power affects their Welfare-optimal Deployment (2012, unknown): “Nagl et al. (2011), Tuohy & O’Malley (2011), and Lamont (2012) model the impact of VRE on storage. These models are also used estimate wind and solar market value, often as a function of penetration. Recent estimates are provided by Swider & Weber (2006), Lamont (2008), Fripp and Wiser (2008), Mills”
• Estimating the marginal abatement cost curve of CO2 emissions in China: Provincial panel data analysis (2015, methodology): “Morris et al. (2012) argue that the MAC is affected by policies abroad, i.e., the policies adopted in other third countries, the historic policy efforts and the coverage of tradable GHG. Fischer and Morgenstern (2006) adopt a meta-analysis strategy to explore the factors that contribute to the vast…”