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

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  • Kiuila, O.
  • Rutherford, T.F.

Abstract

We explore two methods of incorporating bottom-up abatement cost estimates into top-down modeling: an economy-wide method and a sector-specific method. Carbon emissions generally depend 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 an abatement function explicitly in a computable general equilibrium model: a traditional and a hybrid (discrete technology modeling) approach. 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 the calibration process is precisely executed, which contradicts the results of previous studies.

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  • 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.
    • Handle: RePEc:eee:ecolec:v:87:y:2013:i:c:p:62-71
    DOI: 10.1016/j.ecolecon.2012.12.006
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    10. Janos Varga & Werner Roeger & Jan in ’t Veld, 2021. "E-QUEST – A Multi-Region Sectoral Dynamic General Equilibrium Model with Energy Model Description and Applications to Reach the EU Climate Targets," European Economy - Discussion Papers 146, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    11. Rausch, Sebastian & Zhang, Da, 2018. "Capturing natural resource heterogeneity in top-down energy-economic equilibrium models," Energy Economics, Elsevier, vol. 74(C), pages 917-926.
    12. Brita Bye & Taran Fæhn & Orvika Rosnes, 2015. "Residental energy efficiency and European carbon policies A CGE-analysis with bottom-up information on energy efficiency technologies," Discussion Papers 817, Statistics Norway, Research Department.
    13. Varga, Janos & Roeger, Werner & in ’t Veld, Jan, 2022. "E-QUEST: A multisector dynamic general equilibrium model with energy and a model-based assessment to reach the EU climate targets," Economic Modelling, Elsevier, vol. 114(C).
    14. Weitzel, Matthias & Saveyn, Bert & Vandyck, Toon, 2019. "Including bottom-up emission abatement technologies in a large-scale global model for policy assessments," Conference papers 333034, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Weitzel, Matthias & Saveyn, Bert & Vandyck, Toon, 2019. "Including bottom-up emission abatement technologies in a large-scale global economic model for policy assessments," Energy Economics, Elsevier, vol. 83(C), pages 254-263.
    16. Kiuila Olga & Lewczuk Emilia, 2021. "Economic Dynamic Modelling of Climate Policy in Poland," Central European Economic Journal, Sciendo, vol. 8(55), pages 246-255, January.
    17. Bye, Brita & Fæhn, Taran & Rosnes, Orvika, 2018. "Residential energy efficiency policies: Costs, emissions and rebound effects," Energy, Elsevier, vol. 143(C), pages 191-201.
    18. Halkos, George & Tzeremes, Nickolaos & Kourtzidis, Stavros, 2014. "Abating CO2 emissions in the Greek energy and industry sectors," MPRA Paper 60807, University Library of Munich, Germany.
    19. Kiuila, Olga, 2018. "Decarbonisation perspectives for the Polish economy," Energy Policy, Elsevier, vol. 118(C), pages 69-76.
    20. Taran Faehn and Elisabeth T. Isaksen, 2016. "Diffusion of Climate Technologies in the Presence of Commitment Problems," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    21. Kiula, Olga & Markandya, Anil & Ščasný, Milan & Menkyna Tsuchimoto, Fusako, 2014. "The Economic and Environmental Effects of Taxing Air Pollutants and CO2: Lessons from a Study of the Czech Republic," MPRA Paper 66599, University Library of Munich, Germany, revised Oct 2015.

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    More about this item

    Keywords

    Cost curve; Elasticity of substitution; Computable general equilibrium model; Hybrid modeling; Carbon tax;
    All these keywords.

    JEL classification:

    • 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 Adoption and Costs; Distributional Effects; Employment Effects

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