Modelling abatement technologies: A comparison of approaches

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Abstract

Technology catalogues contain technical and economic information about multiple technol-ogies that businesses can bring into use in order to reduce their emissions. By using the in-formation from such catalogues, one can construct a step-curve showing the marginal abatement cost (MAC), i.e. the firms’ cost of reducing emissions by one tonne CO2e, as a function of total abatement. There exists different methods to incorporate the information from technology catalogues in a CGE-model. By imposing different level of taxation in the model, it is possible to construct the “model-based” MAC curve that shows how much the firms will abate at different level of taxation. This MAC curve will differ from the original step-curve consisting of the technologies from the catalogue. However, the size of the devi-ation depends on how the information from the catalogue is implemented in the CGE-model. The traditional way to do this is described in Kiuila and Rutherford (2013). The method suggested in this paper requires calibration of an abatement function outside the CGE-model of interest. Stephensen, P., Beck, U.R. and Berg, R.K suggest an alternative method. This method is presented in the economic memo of 25 August 2020, “End-of-pipe emissions abatement technologies in a CGE-model”. The authors explain how the information from technology cat-alogues can be incorporated by introducing heterogeneity in the firms’ costs of implement-ing the technologies. I find that the method suggested in Stephensen et al. (2020) has a number of advantages.