Advanced Search
MyIDEAS: Login to save this paper or follow this series

Should marginal abatement costs differ across sectors ? the effect of low-carbon capital accumulation

Contents:

Author Info

  • Vogt-Schilb, Adrien
  • Meunier, Guy
  • Hallegatte, Stephane

Abstract

The optimal timing, sectoral distribution, and cost of greenhouse gas emission reductions is different when abatement is obtained though abatement expenditures chosen along an abatement cost curve, or through investment in low-carbon capital. In the latter framework, optimal investment costs differ in each sector: they are equal to the value of avoided carbon emissions, minus the value of the forgone option to invest later. It is therefore misleading to assess the cost-efficiency of investments in low-carbon capital by comparing levelized abatement costs, that is, efforts measured as the ratio of investment costs to discounted abatement. The equimarginal principle applies to an accounting value: the Marginal Implicit Rental Cost of the Capital (MIRCC) used to abate. Two apparently opposite views are reconciled. On the one hand, higher efforts are justified in sectors that will take longer to decarbonize, such as urban planning; on the other hand, the MIRCC should be equal to the carbon price at each point in time and in all sectors. Equalizing the MIRCC in each sector to the social cost of carbon is a necessary condition to reach the optimal pathway, but it is not a sufficient condition. Decentralized optimal investment decisions at the sector level require not only the information contained in the carbon price signal, but also knowledge of the date when the sector reaches its full abatement potential.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2013/04/19/000158349_20130419141450/Rendered/PDF/wps6415.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6415.

as in new window
Length:
Date of creation: 01 Apr 2013
Date of revision:
Handle: RePEc:wbk:wbrwps:6415

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Climate Change Mitigation and Green House Gases; Climate Change Economics; Investment and Investment Climate; Economic Theory&Research; Environment and Energy Efficiency;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Chakravorty, Ujjayant & Moreaux, Michel & Tidball, Mabel, 2006. "Ordering the Extraction of Polluting Nonrenewable Resources," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 415, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Adrien Vogt-Schilb & Stéphane Hallegatte, 2013. "Marginal Abatement Cost Curves and the Optimal Timing of Mitigation Measures," Working Papers, Fondazione Eni Enrico Mattei 2013.89, Fondazione Eni Enrico Mattei.
  3. Laffont, J.-J., 1999. "Political Economy, Information and Incentives," Papers, Toulouse - GREMAQ 99.516, Toulouse - GREMAQ.
  4. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, Elsevier, vol. 54(2-3), pages 164-174, August.
  5. Laffont, Jean-Jacques, 1999. "Political economy, information and incentives1," European Economic Review, Elsevier, Elsevier, vol. 43(4-6), pages 649-669, April.
  6. Reyer Gerlagh & Snorre Kverndokk & Knut Rosendahl, 2009. "Optimal Timing of Climate Change Policy: Interaction Between Carbon Taxes and Innovation Externalities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 43(3), pages 369-390, July.
  7. Vogt-Schilb, Adrien & Meunier, Guy & Hallegatte, Stephane, 2012. "How inertia and limited potentials affect the timing of sectoral abatements in optimal climate policy," Policy Research Working Paper Series 6154, The World Bank.
  8. Smulders, J.A. & Werf, E.H. van der, 2005. "Climate Policy and the Optimal Extraction of High- and Low-Carbon Fossil Fuels," Discussion Paper, Tilburg University, Center for Economic Research 2005-119, Tilburg University, Center for Economic Research.
  9. Lecocq, Franck & Hourcade, Jean-Charles & Ha Duong, Minh, 1998. "Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility," Energy Economics, Elsevier, Elsevier, vol. 20(5-6), pages 539-555, December.
  10. Jaccard, Mark & Rivers, Nic, 2007. "Heterogeneous capital stocks and the optimal timing for CO2 abatement," Resource and Energy Economics, Elsevier, Elsevier, vol. 29(1), pages 1-16, January.
  11. Frederick van der Ploeg & Cees Withagen, 2011. "Too Much Coal, Too Little Oil," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 056, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  12. Rosendahl, Knut Einar, 2004. "Cost-effective environmental policy: implications of induced technological change," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1099-1121, November.
  13. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
  14. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2009. "The Environment and Directed Technical Change," NBER Working Papers 15451, National Bureau of Economic Research, Inc.
  15. André Grimaud & Gilles Lafforgue✝, 2008. "Climate change mitigation policies : Are R&D subsidies preferable to a carbon tax ?," Revue d'économie politique, Dalloz, Dalloz, vol. 0(6), pages 915-940.
  16. Richter, Wolfram F. & Schneider, Kerstin, 2003. "Energy taxation: Reasons for discriminating in favor of the production sector," European Economic Review, Elsevier, Elsevier, vol. 47(3), pages 461-476, June.
  17. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, Econometric Society, vol. 48(3), pages 663-73, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. repec:hal:wpaper:hal-00850680 is not listed on IDEAS
  2. repec:hal:wpaper:hal-00916328 is not listed on IDEAS
  3. repec:hal:ciredw:hal-00916328 is not listed on IDEAS
  4. Oskar Lecuyer & Adrien Vogt-Schilb, 2014. "Assessing and Ordering Investment in Polluting Fossil-fueled and Zero-carbon Capital," Working Papers 2014.05, FAERE - French Association of Environmental and Resource Economists, revised May 2014.
  5. repec:hal:ciredw:hal-00850680 is not listed on IDEAS
  6. repec:hal:wpaper:hal-00866442 is not listed on IDEAS
  7. Adrien Vogt-Schilb & Stéphane Hallegatte, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Post-Print hal-00916328, HAL.
  8. Vogt-Schilb, Adrien & Hallegatte, Stephane, 2011. "When starting with the most expensive option makes sense : use and misuse of marginal abatement cost curves," Policy Research Working Paper Series 5803, The World Bank.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6415. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.