Marginal abatement cost of carbon dioxide emissions: The role of abatement options

Reducing carbon dioxide (CO2) emissions is often not free, and estimating the marginal abatement cost of CO2 emissions (MCAC) provides valuable information for policy analysis and decision-making. Past stud-ies often assume that producers would take a uniform abatement option that overlooks the heterogeneity of abatement options and the possibility of taking energy-related abatement options (e.g., merely cutting down fossil fuel consumption). This study contributes to the literature by investigating how different abatement options can be incorporated into estimating the MCAC. It first provides an expository deriva-tion of the MCAC by opening the black box of the production process, which reveals that the MCAC can be negative if switching to fuels with lower carbon content generates positive marginal profit. We then develop a new approach for estimating the MCAC, where six alternative abatement options are con-sidered. A case study on China's thermal power industry is presented, which reveals that the least-cost abatement option varies across different provinces and periods. Compared with the option of reducing energy consumption and downscaling production activity, switching to cleaner energy tends to abate CO2 emissions at lower costs for most provinces in most years. & COPY; 2023 Elsevier B.V. All rights reserved.

Automated summary

Reducing carbon dioxide (CO2) emissions comes with costs, and estimating the marginal abatement cost of CO2 emissions (MCAC) is crucial for decision-making. This study contributes by considering different abatement options and revealing that the MCAC can be negative if switching to lower carbon fuel generates profit. They develop a new approach for estimating the MCAC, considering six alternative abatement options. A case study on China's thermal power industry shows that the least-cost abatement option varies across provinces and years, with switching to cleaner energy being a cost-effective option in most cases.