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

Author

Listed:
  • Olga Kiuila

    (Faculty of Economic Sciences, University of Warsaw)

  • Thomas F. Rutherford

    (Centre for Energy Policy and Economics, ETH Zurich)

Abstract

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

    as
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    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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