Marginal Abatement Cost Research Articles

How will auctioning impact on the carbon emission abatement cost of electric power generation sector in China?

China will enact a national emissions trading system in 2017. The rules for the initial allocation of emission allowances have not been settled yet. This paper assesses the effect of auctioning as an initial emission allowance allocation methods of the China electricity power generation sector. This study employs a combined model with modified Trans-log production function, dynamic simulation model and multi-objective linear programming to provide more realistic results. After estimating the optimal electric power sources structure and technological structure under different auctioning rates, this paper calculates the abatement cost of the China’s electric power generation sector. When the allowance is free, the carbon shadow price will be 206.12Yuan/ton. When 5% allowance is auctioned, the price will be 216.91Yuan/ton. When the auctioning rate increases, the carbon emission abatement cost increases accordingly, as does the growth rate. The results also show that when the allowance auction rate is 5%, the marginal abatement costs for coal-fired power generation and clean power generation are 0.123Yuan/kWh and 0.121Yuan/kWh respectively, and thus, the total additional cost of the electric power generation sector will increase by 0.244Yuan/kWh, which would be a heavy burden to China’s electric power generation sector and the forward progress of auctioning in the near future may be hindered.

Marginal abatement costs of greenhouse gas emissions: broadacre farming in the Great Southern Region of Western Australia

Broadacre agriculture is a major emitter of greenhouse gases (GHG). To improve efficiency of climate change policies, we need to know the marginal abatement costs of agricultural GHG. This article combines calculations of on‐farm GHG emissions with an input‐based distance function approach to estimate the marginal abatement costs for a broadacre farming system in the Great Southern Region of Western Australia. The results show that, in the study region, the average marginal abatement cost for the 1998–2005 periods was $29.3 per tonne CO2‐e. Farms with higher crop output shares were found to have higher marginal abatement costs. Overall, our results indicate that broadacre agriculture is among the lowest cost sources of GHG mitigation.

Who gains from technological advancement? The role of policy design when cost development for key abatement technologies is uncertain

A simple model is used to illustrate the effects of a reduction in (marginal) abatement cost in a two-country setting. It can be shown that a country experiencing a cost reduction can actually be worse off. This holds true for a variety of quantity and price-based emission policies. Under price-based policies, a country with lower abatement costs might engage in additional abatement effort for which it is not compensated. Under a quantity-based policy with a given allocation, a seller of permits can also be negatively affected by a lower carbon price. We also argue that abatement cost shocks to renewable energy and carbon capture and storage (CCS) are different in terms of their effects on international energy markets. A shock to renewable energy benefits energy importers because the value of fossil fuels is reduced. The opposite holds for a shock to CCS which benefits energy exporters. The channels identified in the theoretical model can be confirmed in a more complex global computable general equilibrium model. Some regions are indeed worse off from a shock that lowers their abatement costs.

Market efficiency and the U.S. market for sulfur dioxide allowances

Focusing on the U.S. sulfur dioxide (SO2) allowance market from its inception in 1994 to 2009, we model allowance prices to determine the influence of market fundamentals on allowance price level and volatility. We find evidence that the SO2 market operates in ways that are not inconsistent with an efficient market – prices that reflect marginal abatement costs – after the first few years of the program but before a court decision that introduced significant uncertainty into the market in mid-2008. Our empirical analysis finds that the SO2 market, similar to other emission markets studied in the literature, can remain relatively inefficient for several years after launch. We also find that market volatility increases in response to all types of communications from the administrator, suggesting that the development of a formal communication strategy, possibly similar to that used by central banks, would reduce price volatility and increase the efficiency of the market.

Potential and economic efficiency of using reduced tillage to mitigate climate effects in Danish agriculture

Soil organic carbon (SOC)11SOC: Soil Organic Carbon. plays a crucial role in regulating the global carbon cycle and its feedbacks within the Earth system. Compelling evidence exists that soil carbon stocks have reduced in many regions of the world, with these reductions often associated with agriculture. In a Danish context, research also suggests that soil carbon stocks are declining. The scope of Payment for Ecosystem Service (PES) approaches to effectively and efficiently address climate regulation will depend on the spatial distribution of the carbon assimilation capacity, current land use, the value of avoided emissions and land owners' objectives and preferences in terms of participating in initiatives to increase SOC. We map the carbon sequestration potential under different scenarios, value the potential sequestered carbon in terms of marginal costs of using voluntary agreements with agricultural land managers and compare these to the marginal abatement costs curve used in Danish climate policy. The cost effectiveness of reduced tillage as a climate mitigation PES scheme critically depends on the current debate on the net effects of carbon sequestration in reduced tillage practices. Based on existing IPCC guidelines, we find that reduced tillage has considerable potential for contributing to a cost effective climate mitigation policy.

The Economic and Budgetary Impact of Climate Policy in Portugal: Carbon Taxation in a Dynamic General Equilibrium Model with Endogenous Public Sector Behavior

The objective of this paper is to study $$\hbox {CO}_{2}$$ taxation in its dual role as a climate and fiscal policy instrument using a dynamic general equilibrium model of the Portuguese economy which highlights the mechanisms of endogenous growth and incorporates a detailed modeling of public sector behavior and accounts. In addition to the conventional marginal abatement cost curve, we present a pair of complementary marginal abatement cost curves which highlight the impact $$\hbox {CO}_{2}$$ taxation has on economic performance and public debt and are therefore directly relevant to the terms of the policy debate. These marginal abatement cost curves provide an effective tool for understanding the rate at which the environmental effectiveness, economic costs, and budgetary effects change with the tax level. Our results indicate that $$\hbox {CO}_{2}$$ taxes can be an important policy instrument for reducing emissions and promoting fiscal consolidation, although this will come at a cost in terms of economic performance. Simulation results suggest that a tax of 17.00 Euros per $$\hbox {tCO}_{2}$$ can satisfy existing climate policy targets. The tax revenue effects, together with reductions in public spending, yield a 4.8 % reduction in public debt. These desirable outcomes come at the cost of a 1.3 % reduction in GDP over the long term. Our analysis highlights that limiting public consumption expenditures can contribute to larger reductions in public debt, albeit at a marginally greater cost to economic activity. In turn, reducing public investment, although effective in reducing public debt, produces a much larger negative economic impact. This evokes an important trade-off, particularly pronounced in the present debates regarding austerity measures in the EU, between fiscal consolidation efforts and efforts to promote convergence to EU standards of living. These results further highlight that modeling assumptions with respect to public spending decision are not innocuous. An exogenous trajectory for public spending suggests substantially smaller GDP effects and substantially larger public debt effects for any given emissions target.

Management of agricultural soils for greenhouse gas mitigation: Learning from a case study in NE Spain

A portfolio of agricultural practices is now available that can contribute to reaching European mitigation targets. Among them, the management of agricultural soils has a large potential for reducing GHG emissions or sequestering carbon. Many of the practices are based on well tested agronomic and technical know-how, with proven benefits for farmers and the environment. A suite of practices has to be used since none of the practices can provide a unique solution. However, there are limitations in the process of policy development: (a) agricultural activities are based on biological processes and thus, these practices are location specific and climate, soils and crops determine their agronomic potential; (b) since agriculture sustains rural communities, the costs and potential for implementation have also to be regionally evaluated and (c) the aggregated regional potential of the combination of practices has to be defined in order to inform abatement targets. We believe that, when implementing mitigation practices, three questions are important: Are they cost-effective for farmers? Do they reduce GHG emissions? What policies favour their implementation? This study addressed these questions in three sequential steps. First, mapping the use of representative soil management practices in the European regions to provide a spatial context to upscale the local results. Second, using a Marginal Abatement Cost Curve (MACC) in a Mediterranean case study (NE Spain) for ranking soil management practices in terms of their cost-effectiveness. Finally, using a wedge approach of the practices as a complementary tool to link science to mitigation policy. A set of soil management practices was found to be financially attractive for Mediterranean farmers, which in turn could achieve significant abatements (e.g., 1.34 MtCO2e in the case study region). The quantitative analysis was completed by a discussion of potential farming and policy choices to shape realistic mitigation policy at European regional level.

Improving the Efficiency of Voluntary Water Quality Conservation Programs

Voluntary approaches have traditionally been used to address environmental externalities emanating from agricultural production in the United States. However, voluntary approaches have largely failed to improve water quality in impaired waters. This paper assesses how to increase the efficiency of voluntary conservation in the context of the Chesapeake Bay. Field-level data representative of cropland in the bay watershed are analyzed using a programming model to quantify the gains of targeting technology-based incentives and of performance-based incentives. Performance-based approaches were the most efficient. The efficiency of technology-based approaches was improved by targeting cropland with features indicative of low marginal abatement costs.

How vulnerable is the emissions market to transaction costs?: An ABMS Approach

The impact of transaction costs on the early emissions trading market is examined by applying an agent-based model and simulation (ABMS) approach. For a realistic model set up, bounded rationality, stochastic characteristics, and learning-by-doing are considered in our search processes. Marginal abatement cost parameters are obtained from Yoo et al. (2010), which is an experimental study on the emissions trading in the Korean power sector. Sensitivity analyses are performed on market performance indices with regard to transaction cost parameters, which represent scales and the learning elasticities of transaction costs. A total of 960 simulations were run in this sensitivity analysis. Sensitivity analysis results consistently show that higher transaction costs worsen market performance. The most remarkable finding in these results is that welfare performance of all the transactions decreases by up to 50% as the scale parameters of transaction costs increase, implying that welfare gain from introducing emissions trading disappears significantly. However, with learning curve effect, welfare performance could be regained by up to 26%. In sum, although transaction costs significantly encroach upon trade gains at the early stage, based on our simulation results, the welfare loss by way of transaction costs is lessened as the knowledge of market participants progresses.

The Marginal Abatement Cost of Carbon Emissions in China

There is an emerging literature estimating the marginal cost of carbon mitigation in China using distance function approaches; however, empirical estimates vary widely in magnitude and variation, which undermines support for policies to curb carbon emission. Applying three commonly used distance functions to China’s provincial data from 2001 to 2010, we show that the variability can be partially explained by the difference in the input/output coverage and whether the estimated marginal abatement cost (MAC) is conditional on the abatement of other correlated pollutants. We also argue that the substantial heterogeneity in abatement cost estimates could be related to an economic interpretation that radial measures reflect the short-run MACs while non-radial measures reflect the long-run MACs. Our mean short-run MAC for carbon is 20 US$ per tonne, an amount that is very close to the carbon prices observed in China’s recently launched pilot markets.

Climate-Smart Agriculture Practices in Zambia: An Economic Analysis at Farm Level

Climate-smart agriculture (CSA) would enhance the capacity of farming systems to sustainably support food security in the context of climatic changes. CSA practices may constitute an ex-ante adaptation strategy while also generating environmental benefits in the form of climate change mitigation. However, questions arise about the profitability of CSA systems and the possibility of spontaneous adoption at smallholders level. A spatial assessment of benefits and costs of CSA systems as opposed to conventional ones in different agro ecologies in Zambia is proposed here, including opportunity costs of switching from one system to another. Primary data collected through ad hoc household and community surveys have been used. Zambian farmers adopt a wide combination of land management practices, applied to various crops. Isolating the productivity effect of each single practice was complicated by the adoption of various combinations of practices. To assess the extent to which SLM technology packages improve crop productivity and net incomes of Zambian family farms, Minimum Soil Disturbance (MSD) systems was selected as the main distilling factor to compared with „conventional tillage systems for key food and cash crops (maize, groundnuts and cotton). MSD in arid areas of Zambia has shown promising results in terms of land, capital and labor productivity and could represent valid CSA option providing that appropriate choices in terms of labor source (manual versus animal draft power), specific practice (planting basins/potholes versus ripping, legume inclusion in crop rotations and residue retention), crop (maize versus groundnut) and access to fertilizer subsidies are made. SLM technology options can also generate environmental benefits in the form of CC mitigation. To better understand mitigation potential, marginal abatement costs curve have been computed. Results show that negative marginal abatement costs for all MSD options imply synergies between increased farm incomes and climate change mitigation, and represent means of generating “win-win” solutions to address poverty and food insecurity as well as environmental benefit (climate change mitigation). The cost-effectiveness of different land management practices is proposed as synergetic decision criteria allowing policy makers to prioritize support interventions on the basis of the economic efficiency of GHG abatements.

Linking an Emissions Trading Scheme with a Renewable Credits Market in Korea

The Emission Trading Scheme (ETS) in Korea enables companies to use offset credits generated from renewable energy projects under the Renewable Portfolio Standard (RPS), which is up to 10% of total allowances. Hence, even if two quantity-based regulation systems have different policy objectives, the two mechanisms can be indirectly linked. This paper demonstrates how one mechanism influences the other by responding to changes in institutional conditions and regulatory policies using the analytic partial equilibrium model. We compared the effect of changes, such as changes in the quota of renewable energy use in power generation, reduction in target greenhouse gas emission, level of penalty, and marginal abatement costs, including fuel switching from fossil fuel to renewable energy.

상향식 접근법에 의한 국내 시설재배 에너지부분의 온실가스 배출량 및 감축 잠재량 분석

A bottom-up approach has been conducted to estimate greenhouse gas (GHG) emission and to analyze the marginal abatement cost for the Korean horticulture energy sector. With the systematically derived activity and energy balance data, the BAUs have been estimated, along with the marginal abatement cost over the period 2010 through 2030. The result from the marginal abatement cost analysis may provide general guidelines and procedures for the establishment of GHG abatement polices.

Global mitigation potential and costs of reducing agricultural non-CO2 greenhouse gas emissions through 2030

Agricultural emissions account for 53% of 2010 global non-CO2 emissions and are projected to increase substantially over the next 20 years, especially in Asia, Latin America and Africa. While agriculture is a substantial source of emissions, it is also generally considered to be a potential source of cost-effective non-CO2 GHG abatement. Previous “bottom-up” analyses provided marginal abatement cost (MAC) curves for use in modeling these options within economy-wide and global mitigation analyses. In this paper, we utilize updated economic and biophysical data and models developed by the US Environmental Protection Agency (EPA) to investigate regional mitigation potential for major sources of agricultural GHG emissions. In addition, we explore mitigation potential available at costs at or below the estimated benefits of mitigation, as represented by the social cost of carbon. Key enhancements over previous regional assessments include incorporation of additional mitigation options, updated baseline emissions projections, greater spatial disaggregation, and development of MAC curves through 2030. For croplands and rice cultivation, biophysical, process-based models (DAYCENT and DNDC) are used to simulate yields and net GHG emissions under baseline and mitigation scenarios while the livestock sector is modeled by applying key mitigation options to baselines compiled by EPA. MAC curves are generated accounting for net GHG reductions, yield effects, livestock productivity effects, commodity prices, labor requirements, and capital costs where appropriate. MAC curves are developed at the regional level and reveal large potential for non-CO2 GHG mitigation at low carbon prices, especially in Asia.

Integrated assessment of energy efficiency technologies and CO2 abatement cost curves in China’s road passenger car sector

Road transport is one of the main sources of energy consumption and CO2 emissions. It is essential to conserve energy and reduce emissions by promoting energy efficiency technologies (EETs) in this sector. This study first identifies EETs for the passenger cars and then classifies them into various technology bundles. It then analyzes the CO2-reduction potentials and emissions abatement costs of 55 type-path, 246 type-path-technology, and 465 type-path-subtechnology bundles from micro-vehicular and macro-industrial perspectives during 2010–2030, based on which marginal abatement cost (MAC) curve for China’s road passenger car sector is established. Results show that the cumulative CO2-reduction potential of EETs on passenger cars in China during 2010–2030 is about 2698.8Mt, but only 4% is cost-effective. The EETs with low emissions abatement costs are mainly available in the spark ignition (SI), diesel, and hybrid electric vehicle (HEV) paths on the taxis and high-performance cars, and also in the transmission, vehicle body and SI technologies on the private cars, which could be promoted at present. The technologies with large emissions reduction potential are mainly available in the plug-in hybrid electric vehicle (PHEV) and electric vehicle (EV) paths, which would be the main channels for reducing carbon emissions in the long run.

Global mitigation of non-CO2 greenhouse gases: marginal abatement costs curves and abatement potential through 2030

Greenhouse gases (GHGs) other than carbon dioxide (CO2) play an important role in the effort to understand and address global climate change. Approximately 25% of Global warming potential-weighted GHG emissions in the year 2005 comprise the non-CO2 GHGs. The report, Global Mitigation of Non-CO2 Greenhouse Gases: 2010–2030 provides a comprehensive global analysis and resulting data-set of marginal abatement cost curves that illustrate the abatement potential of non-CO2 GHGs by sector and by region. The basic methodology – a bottom-up, engineering cost approach – builds on the baseline non-CO2 emissions projections published by EPA, applying abatement options to the emissions baseline in each sector. The results of the analysis are MAC curves that reflect aggregated breakeven prices for implementing abatement options in a given sector and region. Among the key findings of the report is that significant, cost-effective abatement exists from non-CO2 sources with abatement options that are available today. Without a price signal (i.e. at $0/tCO2e), the global abatement potential is greater than 1800 million metric tons of CO2 equivalent. Globally, the energy and agriculture sectors have the greatest potential for abatement. Among the non-CO2 GHGs, methane has the largest abatement potential. Despite the potential for project level cost savings and environmental benefits, barriers to mitigating non-CO2 emissions continue to exist. This paper will provide an overview of the methods and key findings of the report.

Uncertainty quantification of CO2 emission reduction for maritime shipping

The International Maritime Organization (IMO) has recently proposed several operational and technical measures to improve shipping efficiency and reduce the greenhouse gases (GHG) emissions. The abatement potentials estimated for these measures have been further used by many organizations to project future GHG emission reductions and plot Marginal Abatement Cost Curves (MACC). However, the abatement potentials estimated for many of these measures can be highly uncertain as many of these measures are new, with limited sea trial information. Furthermore, the abatements obtained are highly dependent on ocean conditions, trading routes and sailing patterns. When the estimated abatement potentials are used for projections, these ‘input’ uncertainties are often not clearly displayed or accounted for, which can lead to overly optimistic or pessimistic outlooks. In this paper, we propose a methodology to systematically quantify and account for these input uncertainties on the overall abatement potential forecasts. We further propose improvements to MACCs to better reflect the uncertainties in marginal abatement costs and total emissions. This approach provides a fuller and more accurate picture of abatement forecasts and potential reductions achievable, and will be useful to policy makers and decision makers in the shipping industry to better assess the cost effective measures for CO2 emission reduction.

Price and Market Behavior in Phase II of the EU ETS: A Review of the Literature

Since 2005, the EU ETS has provided a market-based price signal for European carbon emissions, accompanied by increasing economic research related to this policy instrument. In this paper, we carry out a review of the empirical literature examining allowance price formation. A consensus has emerged that allowance prices are significantly related to fuel prices and to variables affecting the expected amount of necessary abatement, such as economic activity or changes in the cap. However, the relationship is not robust, probably because the relevant abatement technologies change with the economic conditions they operate in. There is evidence that models explicitly accounting for uncertainty about future demand and supply of abatement are better at explaining allowance price variation during certain periods. Yet, our understanding of the level of the allowance price remains poor. We cannot say with any degree of confidence whether the price is “right,” in the sense that it reflects marginal abatement costs, or whether there is a price wedge caused by transaction costs, price manipulation, or other sources of inefficiency. Nevertheless, the market has matured compared to Phase I, and the banking provision has induced it to incorporate future scarcity of allowances and to smooth the effect of transient shocks as intended.

Role of carbon swap trading and energy prices in price correlations and volatilities between carbon markets

The present paper theoretically and empirically examines the role of carbon swap trading and energy prices in volatilities and price correlations between the EU and Kyoto Protocol emissions trading schemes. A supply and demand based correlation model between EUA and sCER price returns is proposed in detail using inverse Box–Cox type marginal abatement cost (MAC) curves and simple emission reduction volume processes. The model includes financial players' EUA–sCER swap transaction in boom periods of carbon prices using the logit model for EUA and EUA–sCER swap volume correlations, and stronger energy price impacts on EUA prices than sCER prices using a mean-reverting lognormal process for energy prices. The empirical studies using EUA and sCER prices estimate the model parameters, resulting in a positive EUA volume impact on EUA–sCER swap transactions and a positive energy price impact on EUA prices. It is shown that high EUA–sCER price correlations during high EUA price periods stemmed from EUA–sCER swap transactions, whereas high EUA–sCER price correlations during the period of financial turmoil with low EUA prices came from the drop in energy prices. We also show that the leverage effects often observed in security markets exist in both the EUA and sCER markets according to the price–volatility relation.

Low carbon transportation in Thailand: CO2 mitigation strategy in 2050.

Nationally Appropriate Mitigation Actions (NAMAs) involve the collaboration on reduction of greenhouse gas (GHG) emissions in developing countries with suitable countermeasures relevant to the state of technological and economic conditions prevalent in the country. This study proposes appropriate GHG countermeasures in Thai transport NAMAs, which are based on the implementation of transport demand management, modal shift, fuel switching, and advanced technologies in the timeframe between 2005 and 2050. Furthermore, this study considers the impacts of CO2 mitigation through the proposed countermeasures on energy security and GHG emissions. Results of analyses on low carbon transportation are also useful to other developing countries. Finally, the concept of marginal abatement cost is employed to investigate cost-effective mitigation countermeasures.