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


  • Olga Kiuila

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

  • Thomas F. Rutherford

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


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

Suggested Citation

  • 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.
  • Handle: RePEc:war:wpaper:2011-26

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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Inha Oh & Yeongjun Yeo & Jeong-Dong Lee, 2015. "Efficiency versus Equality: Comparing Design Options for Indirect Emissions Accounting in the Korean Emissions Trading Scheme," Sustainability, MDPI, Open Access Journal, vol. 7(11), pages 1-21, November.
    3. Kiuila, O. & Rutherford, T.F., 2013. "Piecewise smooth approximation of bottom–up abatement cost curves," Energy Economics, Elsevier, vol. 40(C), pages 734-742.
    4. repec:eee:energy:v:143:y:2018:i:c:p:191-201 is not listed on IDEAS
    5. 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.
    6. 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).
    7. 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.

    More about this item


    cost curve; elasticity of substitution; computable general equilibrium model; hybrid modeling; carbon tax;

    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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