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Greenhouse Gas Abatement Cost Curves of the Residential Heating Market – a Microeconomic Approach

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  • Dieckhoener, Caroline

    ()
    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

  • Hecking, Harald

    ()
    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

In this paper, we develop a microeconomic approach to deduce greenhouse gas abatement cost curves of the residential heating sector. By accounting for household behavior, we find that welfare-based abatement costs are generally higher than pure technical equipment costs. Our results are based on a microsimulation of private households' investment decision for heating systems until 2030. The households' investment behavior in the simulation is derived from a discrete choice estimation which allows investigating the welfare costs of di fferent abatement policies in terms of the compensating variation and the excess burden. We simulate greenhouse gas abatements and welfare costs of carbon taxes and subsidies on heating system investments until 2030 to deduce abatement curves. Given utility maximizing households, our results suggest a carbon tax to be the welfare efficient policy. Assuming behavioral misperceptions instead, a subsidy on investments might have lower marginal greenhouse gas abatement costs than a carbon tax.

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Bibliographic Info

Paper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2012-16.

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Length: 41 pages
Date of creation: 29 Oct 2012
Date of revision:
Handle: RePEc:ris:ewikln:2012_016

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Keywords: Household behavior; discrete choice; Pigou; greenhouse gas abatement costs;

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