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Piecewise smooth approximation of bottom–up abatement cost curves

  • Kiuila, O.
  • Rutherford, T.F.

Top–down models usually include piecewise-smooth functions to describe marginal cost curves, while bottom–up models use step function curves. When a bottom–up cost curve is available, we can explicitly represent this curve with a top–down model in order to replicate its shape instead of using arbitrary assumptions. We propose several methods to approximate a piecewise function from a step function using constant elasticity of substitution technologies. Specifically, we consider a pollution abatement sector and calibrate the parameters of the abatement function in order to allow proper assessment of the economic effects of an environmental policy. Our methodology can be applied to any sector characterized by decreasing returns to scale technologies. We conclude that the elasticities of substitution need not be estimated only on the basis of historical data, but can be precisely calibrated on the basis of engineering estimates of technology potential.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 40 (2013)
Issue (Month): C ()
Pages: 734-742

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Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:734-742
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Baker, Erin & Clarke, Leon & Shittu, Ekundayo, 2008. "Technical change and the marginal cost of abatement," Energy Economics, Elsevier, vol. 30(6), pages 2799-2816, November.
  2. Wing, Ian Sue, 2006. "The synthesis of bottom-up and top-down approaches to climate policy modeling: Electric power technologies and the cost of limiting US CO2 emissions," Energy Policy, Elsevier, vol. 34(18), pages 3847-3869, December.
  3. Dale W. Jorgenson & Peter J. Wilcoxen, 1990. "Environmental Regulation and U.S. Economic Growth," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 314-340, Summer.
  4. Zhihao Yu, 2005. "Environmental Protection: A Theory of Direct and Indirect Competition for Political Influence," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 269-286.
  5. Klepper, Gernot & Peterson, Sonja, 2006. "Marginal abatement cost curves in general equilibrium: The influence of world energy prices," Open Access Publications from Kiel Institute for the World Economy 3775, Kiel Institute for the World Economy (IfW).
  6. Christoph Bohringer, Andreas Loschel and Thomas F. Rutherford, 2006. "Efficiency Gains from "What"-Flexibility in Climate Policy An Integrated CGE Assessment," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 405-424.
  7. Jaccard, Mark & Murphy, Rose & Rivers, Nic, 2004. "Energy-environment policy modeling of endogenous technological change with personal vehicles: combining top-down and bottom-up methods," Ecological Economics, Elsevier, vol. 51(1-2), pages 31-46, November.
  8. Sue Wing, Ian, 2006. "Representing induced technological change in models for climate policy analysis," Energy Economics, Elsevier, vol. 28(5-6), pages 539-562, November.
  9. Olga Kiuila & Thomas F. Rutherford, 2011. "The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling," Working Papers 2011-26, Faculty of Economic Sciences, University of Warsaw.
  10. Kiuila, Olga & Peszko, Grzegorz, 2006. "Sectoral and macroeconomic impacts of the large combustion plants in Poland: A general equilibrium analysis," Energy Economics, Elsevier, vol. 28(3), pages 288-307, May.
  11. Gerlagh, Reyer & Dellink, Rob & Hofkes, Marjan & Verbruggen, Harmen, 2002. "A measure of sustainable national income for the Netherlands," Ecological Economics, Elsevier, vol. 41(1), pages 157-174, April.
  12. Sato, Ryuzo, 1976. "Self-Dual Preferences," Econometrica, Econometric Society, vol. 44(5), pages 1017-32, September.
  13. Perroni, Carlo & Rutherford, Thomas F, 1998. "A Comparison of the Performance of Flexible Functional Forms for Use in Applied General Equilibrium Modelling," Computational Economics, Society for Computational Economics, vol. 11(3), pages 245-63, June.
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