How to Calculate Marginal Abatement Costs

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Abatement curves show the cost of abating, or reducing, any kind of pollutant, such as greenhouse gas emissions. Typically there are a range of abatement measures with varying costs. By drawing a chart with costs on the Y-axis and abatement measures on the X-axis, you can show how available options become gradually more expensive as you exhaust cheaper options and abate a greater proportion of the pollutant. Abatement curves can be produced at the level of economy, sector or firm. A graphical method of calculation obtains marginal abatement costs from the curves, and is demonstrated here.

  • Identify the sources of a pollutant in your economy. For example, for greenhouse gas emissions you could look at sectors such as energy production, residential buildings, commercial buildings, transportation, industry and agriculture.

  • Identify the ways in which these emissions can be reduced. For example, in the residential sector, it may be installing loft insulation to reduce energy demand, or by investing in renewable energy. In transportation it may be switching to hybrid vehicles. In industry, it may be possible to install new technology, or the only way may be to stop a certain kind of production all together.

  • Calculate the reduction in the pollutant for all of these measures. This is necessary to show the proportion of a pollutant abated by particular measure, on the X-axis of the chart.

  • Calculate the costs of all of these measures. Costs may be negative, where the measures eliminate waste and save money. Costs may get very high as the level of pollution abated approaches 100 percent.

  • Draw a chart, placing the cheapest measure first along the X-axis, and cumulatively adding more expensive abatement measures. Each abatement measure should have its own bar, with the width of the bar representing the amount of pollution abated, and the height of the bar representing the cost of the measure. When placed alongside each other, the bars should form a jagged "curve."

  • Obtain the marginal abatement cost by identifying what part of the curve the economy is on and seeing the additional cost of abating additional units of pollution.

  • Follow the same steps for a sector-wide abatement curve, going into more detail about the various technologies available. For example, in the residential sector, you may show loft insulation, double glazed windows and cavity wall insulation.

  • Follow the same steps for a firm-level abatement curve. In manufacturing, the various abatement measures may be progressively more expensive technology, or different methods of producing a good. The "curve" may be little more than two or three bars in this case.

References

  • "Environmental Economics"; Charles Kolstad; 2000
  • Photo Credit Hemera Technologies/AbleStock.com/Getty Images
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