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Extending the Limits of the Abatement Cost

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  • Guy Meunier
  • Jean-Pierre Ponssard

Abstract

The paper examines the relevant cost benefit framework for public authorities investigating the potential of local projects to mitigate climate change. Because these projects are typically limited in time and space, continuation pathways need be introduced to capture the benefits provided by a project over the longer term. This issue is particularly acute in the transition toward carbon neutrality, which aims for the full abatement of emissions by a future end date. The relevant question is not whether or not to decarbonize an activity but when to do so, and how. We propose a new metric that incorporates into the analytical framework the dynamic interactions between a project and its continuation. This metric is defined as the annual overall discounted cost divided by the long term annual abatement. The new metric is a non trivial extension of the standard cost of abatement. It determines when precisely to launch a given project and addresses the question of how to compare competing projects using their on going emissions up to their respective optimal launch dates. Two illustrations make clear the novelty of our approach: the choice of the optimal mix of technologies for the electricity sector and the comparison between competing green technologies for mobility.

Suggested Citation

  • Guy Meunier & Jean-Pierre Ponssard, 2022. "Extending the Limits of the Abatement Cost," CESifo Working Paper Series 9707, CESifo.
    • Handle: RePEc:ces:ceswps:_9707
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp9707.pdf
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    References listed on IDEAS

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    1. Erin D. Baker & Seyedeh Nazanin Khatami, 2019. "The levelized cost of carbon: a practical, if imperfect, method to compare CO2 abatement projects," Climate Policy, Taylor & Francis Journals, vol. 19(9), pages 1132-1143, October.
    2. Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-241, May.
    3. Anna Creti & Alena Kotelnikova & Guy Meunier & Jean-Pierre Ponssard, 2018. "Defining the Abatement Cost in Presence of Learning-by-Doing: Application to the Fuel Cell Electric Vehicle," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(3), pages 777-800, November.
    4. Kenneth Gillingham & James H. Stock, 2018. "The Cost of Reducing Greenhouse Gas Emissions," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 53-72, Fall.
    5. Guy Meunier & Lucie Moulin & Jean-Pierre Ponssard, 2022. "Why local initiatives for the energy transition should coordinate: The case of cities for fuel cell buses in Europe," Revue d'économie industrielle, De Boeck Université, vol. 0(2), pages 21-54.
    6. Fabian Kesicki & Paul Ekins, 2012. "Marginal abatement cost curves: a call for caution," Climate Policy, Taylor & Francis Journals, vol. 12(2), pages 219-236, March.
    7. Anna Creti & Alena Kotelnikova & Guy Meunier & Jean-Pierre Ponssard, 2018. "Correction to: Defining the Abatement Cost in Presence of Learning-by-Doing: Application to the Fuel Cell Electric Vehicle," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(3), pages 801-801, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    cost benefit analysis; abatement cost; time value of money; learning-by-doing;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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