Marginal abatement cost curves: a call for caution

Abstract

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.