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Approximation of Marginal Abatement Cost Curve

Author

Listed:
  • Olga Kiuila

    () (Faculty of Economic Sciences, University of Warsaw)

  • Thomas F. Rutherford

    () (Centre for Energy Policy and Economics, ETH Zurich)

Abstract

Top-down models usually include piecewise-smooth functions to describe marginal cost curves, while bottom-up models describe those curves with a step function. 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 arbitrary assumptions. We propose 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 be able properly to assess 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.

Suggested Citation

  • Olga Kiuila & Thomas F. Rutherford, 2011. "Approximation of Marginal Abatement Cost Curve," Working Papers 2011-12, Faculty of Economic Sciences, University of Warsaw.
  • Handle: RePEc:war:wpaper:2011-12
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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP52.pdf
    File Function: First version, 2011
    Download Restriction: no

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    Cited by:

    1. 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.
    2. Branca, Giacomo & Lipper, Leslie & Sorrentino, Alessandro, 2012. "Benefit-costs analysis of climate-related agricultural investments in Africa: a case study," Congress Papers 124109, Italian Association of Agricultural and Applied Economics (AIEAA).

    More about this item

    Keywords

    elasticity of substitution; calibration; abatement; top-down and bottom-up modeling;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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