Marginal abatement cost (MAC) curves: confronting theory and practice

Abstract

Abstract Marginal abatement cost (MAC) curves are a commonly used policy tool indicating emission abatement potential and associated abatement costs. They have been extensively used for a range of environmental issues in different countries and are increasingly applied to climate change policy. However in the past, decisions in the complex field of climate policy have been partially based on MAC curves with methodological shortcomings. This paper investigates how their simplistic use has been misleading and finds that the limits of the MAC curve concept can lead to biased decision making. Nevertheless, MAC curves are a useful policy tool, if not relied on exclusively, providing an illustrative guide for subsequent analysis especially for iterative policy making as more information on costs and policy effectiveness is discovered. This paper identifies some steps to overcome present shortcomings in the generation of MAC curves. These include a systems approach to capture interactions, consideration of ancillary benefits, a better representation of uncertainties and representation of cumulative emission abatement to address time-related interactions.