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The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling

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  • Olga Kiuila

    () (Faculty of Economic Sciences, University of Warsaw)

  • Thomas F. Rutherford

    () (Centre for Energy Policy and Economics, ETH Zurich)

Abstract

We explore two methods of incorporating bottom-up abatement cost estimates into top-down modeling: economy-wide and sector-specific. Carbon emissions depend basically on technology and scale. Given the technology options, abatement is possible without a substantial reduction in scale. Otherwise the change must come purely through a reduction in demand. Our analysis shows that the cost of environmental policy is considerably overestimated by top-down models if a bottom-up abatement cost curve is not included. Using the data for the Swiss economy, we demonstrate two techniques of representing abatement function explicitly in a computable general equilibrium model: a traditional and a hybrid (discrete technology modeling) approaches. The results suggest that the current climate policy in Switzerland will not be able to move the economy towards the required 10% CO2 reduction. Both approaches provide virtually the same results when calibration process is precisely executed, which contradicts the results in previous studies..

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File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP66.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2011-26.

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Length: 30 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:war:wpaper:2011-26

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Keywords: cost curve; elasticity of substitution; computable general equilibrium model; hybrid modeling; carbon tax;

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  1. Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1997. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Discussion Papers dp-97-18-rev, Resources For the Future.
  2. Schmutzler, Armin & Goulder, Lawrence H., 1997. "The Choice between Emission Taxes and Output Taxes under Imperfect Monitoring," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 51-64, January.
  3. Dellink, Rob & Hofkes, Marjan & van Ierland, Ekko & Verbruggen, Harmen, 2004. "Dynamic modelling of pollution abatement in a CGE framework," Economic Modelling, Elsevier, vol. 21(6), pages 965-989, December.
  4. Koopmans, Carl C. & te Velde, Dirk Willem, 2001. "Bridging the energy efficiency gap: using bottom-up information in a top-down energy demand model," Energy Economics, Elsevier, vol. 23(1), pages 57-75, January.
  5. Olga Kiuila, 2011. "Interactions between trade and environmental policies in the Czech economy," Working Papers 2011-16, Faculty of Economic Sciences, University of Warsaw.
  6. Baldursson, Fridrik M & von der Fehr, Nils-Henrik M, 2004. "A Whiter Shade of Pale: on the Political Economy of Regulatory Instruments," Memorandum 29/2004, Oslo University, Department of Economics.
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