The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling
AbstractWe 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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Bibliographic InfoPaper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2011-26.
Length: 30 pages
Date of creation: 2011
Date of revision:
cost curve; elasticity of substitution; computable general equilibrium model; hybrid modeling; carbon tax;
Other versions of this item:
- Kiuila, O. & Rutherford, T.F., 2013. "The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling," Ecological Economics, Elsevier, vol. 87(C), pages 62-71.
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-ENE-2012-01-03 (Energy Economics)
- NEP-ENV-2012-01-03 (Environmental Economics)
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