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Concept
Marginal abatement cost
Summary
Abatement cost is the cost of reducing environmental negatives such as pollution. Marginal cost is an economic concept that measures the cost of an additional unit. The marginal abatement cost, in general, measures the cost of reducing one more unit of pollution. Marginal abatement costs are also called the "marginal cost" of reducing such environmental negatives.
Although marginal abatement costs can be negative, such as when the low carbon option is cheaper than the business-as-usual option, marginal abatement costs often rise steeply as more pollution is reduced. In other words, it becomes more expensive [technology or infrastructure changes] to reduce pollution past a certain point.
Marginal abatement costs are typically used on a marginal abatement cost curve, which shows the marginal cost of additional reductions in pollution.
Carbon traders use marginal abatement cost curves to derive the supply function for modelling carbon price fundamentals. Power companies may employ marginal abatement cost curves to guide their decisions about long-term capital investment strategies to select among a variety of efficiency and generation options. Economists have used marginal abatement cost curves to explain the economics of interregional carbon trading. Policy-makers use marginal abatement cost curves as merit order curves, to analyze how much abatement can be done in an economy at what cost, and where policy should be directed to achieve the emission reductions.
However, marginal abatement cost curves should not be used as abatement supply curves (or merit order curves) to decide which measures to implement in order to achieve a given emission-reduction target. Indeed, the options they list would take decades to implement, and it may be optimal to implement expensive but high-potential measures before introducing cheaper measures.
The way that marginal abatement cost curves are usually built has been criticized for lack of transparency and the poor treatment it makes of uncertainty, inter-temporal dynamics, interactions between sectors and ancillary benefits.
Official source
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