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

Abstract

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.