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Approximation of Marginal Abatement Cost Curve

  • Olga Kiuila

    ()

    (Faculty of Economic Sciences, University of Warsaw)

  • Thomas F. Rutherford

    ()

    (Centre for Energy Policy and Economics, ETH Zurich)

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.

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File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP52.pdf
File Function: First version, 2011
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Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2011-12.

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Length: 24 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:war:wpaper:2011-12
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