Fabian Kesicki

Marginal abatement cost curves: a call for caution

Legal commitments to reduce CO2 emissions require policy makers to find cost-efficient means to meet these obligations. Marginal abatement cost (MAC) curves, which illustrate the economics associated with climate change mitigation, have recently attracted a great amount of attention. A number of limitations with MAC curves are explained by the implication they should be just one tool in a broader set of decision-making aids used in assessing climate policy. MAC curves, for example, omit ancillary benefits of greenhouse gas emission abatement, treat uncertainty in a limited manner, exclude intertemporal dynamics and lack the necessary transparency concerning their assumptions. MAC curves based on the individual assessment of abatement measures suffer from additional shortcomings such as the non-consideration of interactions and non-financial costs, a possibly inconsistent baseline, double counting and limited treatment of behavioural aspects. Reducing emissions from deforestation and forest degradation exhibit many of the above-mentioned problems, making it particularly difficult to capture in a cost curve. Policy makers should therefore be cautious when interpreting MAC curves, pay attention to the underlying assumptions, consider non-financial costs and be aware of the important uncertainties and underlying path dependencies.

Marginal Abatement Cost Curves: Combining Energy System Modelling and Decomposition Analysis

Marginal abatement cost (MAC) curves are a useful policy tool to communicate findings on the technological structure and the economics of CO2 emissions reduction. However, existing ways of generating MAC curves do not display consistent technological detail and do not consider system-wide interactions and uncertainty in a structured manner. This paper details a new approach to overcome the present shortcomings by using an energy system model, UK MARKAL, in combination with index decomposition analysis. In addition, this approach allows different forms of uncertainty analysis to be used in order to test the robustness of the MAC curve. For illustration purposes, a sensitivity analysis concerning fossil fuel prices is applied to the transport sector of the UK. The resulting MAC curves are found to be relatively robust to different fuel costs at higher CO2 tax levels. The new systems-based approach improves MAC curves through the avoidance of an inconsistent emissions baseline, the incorporation of system-wide interactions and the price responsiveness of demand.