When Starting with the Most Expensive Option Makes Sense : Use and Misuse of Marginal Abatement Cost Curves

When Starting with the Most Expensive Option Makes Sense : Use and Misuse of Marginal Abatement Cost Curves

This article investigates the use of expert-based Marginal Abatement Cost Curves (MACC) to design abatement strategies. It shows that introducing inertia, in the form of the "cost in time" of available options, changes significantly the m...

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Bibliographic Details
Main Authors:	Vogt-Schilb, Adrien, Hallegatte, Stephane
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ABATEMENT ACTIVITIES ABATEMENT COSTS ABATEMENT LEVEL ABATEMENT MEASURES ABATEMENT OPTION ABATEMENT POTENTIAL ABATEMENT STRATEGIES ABATING CLIMATE CHANGE AGGREGATE EMISSIONS AIR AIR POLLUTION AIR POLLUTION REDUCTION AMOUNT OF ABATEMENT ANNUAL EMISSION ANNUAL EMISSIONS ATMOSPHERIC CONCENTRATION AUTO INDUSTRY BASELINE EMISSIONS CAPITAL STOCKS CAPITAL TURNOVER CARBON CARBON BUDGET CARBON EMISSIONS CARBON PRICE CARBON PRICES CLEAN TRANSPORTATION CLIMATE CLIMATE CHANGE CLIMATE DAMAGES CLIMATE OBJECTIVES CLIMATE POLICIES CLIMATE POLICY CLIMATE RESPONSE CLIMATIC CHANGE CO CO2 COMBUSTION CONCENTRATIONS CUMULATIVE EMISSIONS DEMAND CURVE DISTRIBUTIONAL IMPACTS ECOLOGICAL ECONOMICS ECONOMIC SECTORS ELECTRIC POWER ELECTRIC POWER SYSTEMS ELECTRIC VEHICLES ELECTRICITY EMISSION EMISSION ABATEMENT EMISSION BASELINE EMISSION CONSTRAINT EMISSION REDUCTIONS EMISSION TARGET EMISSION TARGETS EMISSIONS EMISSIONS ABATEMENT EMISSIONS PATHWAYS EMISSIONS TARGETS ENERGY ECONOMICS ENERGY INFRASTRUCTURE ENERGY POLICY ENERGY PRICES ENERGY SECURITY ENERGY SOURCES ENGINES ENVIRONMENTAL ECONOMICS ENVIRONMENTAL MANAGEMENT ENVIRONMENTAL POLICIES ENVIRONMENTAL POLICY EXOGENOUS CONSTRAINT FUEL FUEL ECONOMY GAS EMISSION GHG GLOBAL WARMING GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES GREENHOUSE-GAS INVESTMENT DECISIONS LOW-CARBON MARGINAL ABATEMENT MARGINAL ABATEMENT COST MARGINAL COST MARGINAL COST OF ABATEMENT MARKET FAILURES POLICY ANALYSIS POLICY IMPLICATIONS POLLUTION ABATEMENT POWER GENERATION POWER PLANTS PP PRESENT COST PRESENT VALUE PRICE SIGNAL REDUCTION IN EMISSIONS RENEWABLE ENERGIES RENEWABLE ENERGY RESTRICTIONS SHADOW PRICE SUM OF EMISSIONS SUPPLY CURVE SUSTAINABLE DEVELOPMENT SUSTAINABLE ENERGY TRADABLE EMISSIONS TRANSACTION COSTS VEHICLE WASTE WASTE RECYCLING WORLD ENERGY
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110921094422 http://hdl.handle.net/10986/3567

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Summary:	This article investigates the use of expert-based Marginal Abatement Cost Curves (MACC) to design abatement strategies. It shows that introducing inertia, in the form of the "cost in time" of available options, changes significantly the message from MACCs. With an abatement objective in cumulative emissions (e.g., emitting less than 200 GtCO2 in the 2000-2050 period), it makes sense to implement some of the more expensive options before the potential of the cheapest ones has been exhausted. With abatement targets expressed in terms of emissions at one point in time (e.g., reducing emissions by 20 percent in 2020), it can even be preferable to start with the implementation of the most expensive options if their potential is high and their inertia significant. Also, the best strategy to reach a short-term target is different depending on whether this target is the ultimate objective or there is a longer-term target. The best way to achieve Europe's goal of 20 percent reduction in emissions by 2020 is different if this objective is the ultimate objective or if it is only a milestone in a trajectory toward a 75 percent reduction in 2050. The cheapest options may be sufficient to reach the 2020 target but could create a carbon-intensive lock-in and preclude deeper emission reductions by 2050. These results show that in a world without perfect foresight and perfect credibility of the long-term carbon-price signal, a unique carbon price in all sectors is not the most efficient approach. Sectoral objectives, such as Europe's 20 percent renewable energy target in Europe, fuel-economy standards in the auto industry, or changes in urban planning, building norms and infrastructure design are a critical part of an efficient mitigation policy.