In chapter i, a two capital stock adjustment cost model is used to find the effects on productive capital investment of environmental regulation, which forces firms to invest in pollution control equipment. Marginal abatement cost curve for assessment of natural gas. Hussen is a professor and chair of the department of economics, kalamazoo college. This paper examines the abatement cost structure of the cdm projects in the pipeline with the. To get some idea of how economists assess abatement policy options, we look at the estimated cost of reduction of global greenhouse gas emissions in figure 20. Both environmental damage and associated abatement costs may differentially affect the rich and the poor or other significant groups in society, with equity implications across space and time. The economics of ghg mitigation options and its financial implications for cities. Environmental an introduction seventh edition barry c. How economic activity affects the fragile biosphere of our planet, and how the resulting environmental problems can be addressed. Cost benefit analysis abatement policy a policy designed to reduce environmental damages. Marginal abatement cost curve for assessment of natural gas utilities cap and trade activities eb20160359 july 20, 2017 submitted to. Preliminary analysis of the implementation of an euwide permit system on co2 emissions abatement costs results from poles model pdf 50k although the models are different in some major characteristics they come to fairly similar conclusions about the achievable cost savings. Greenhouse gas abatement cost curves of the residential heating. Institute of energy economics at the university of cologne ewi.
Environmental economics environment european commission. When modeling the effects of innovation on the marginal abatement cost mac curve, many studies in environmental economics have posited, implicitly or explicitly, a uniform downward shift. A methodology for constructing marginal abatement cost. Integrated environmental management information series. A cost borne by many businesses for the removal andor reduction of an undesirable item that they have created.
Marginal abatement cost mac curves, which illustrate the economics associated with climate change mitigation, have recently attracted a great amount of attention. Marginal abatement cost mac curves, relationships between tons of emissions. Abatement cost curves were applied to air pollutants and their impacts as a result of restructuring of national energy systems and energy conservation measures 11, waste reduction strategies in industry responding to tougher environmental regulations 12, and water availability to inform on the scale, costs and tradeoffs of. Environmental protection agencys epa office of policy opnational center for environmental economics ncee, located at epa headquarters in washington, dc. The marginal cost of abatement mac is equalized over all polluting firms. Department of commerce, 1996 estimated the pollution abatement costs borne by u. Obviously, the choice among three options depends on abatement cost and price of permits. This study intentionally avoids any assessment of policies and regulatory choices. When the tax policy is implemented, a company decides on the emission amount so that the marginal abatement cost equals the tax rate. Marginal cost of pollution is the additional environmental cost that results due to the production of one additional unit.
Market failure occurs because of externalities, common. An introductory course in environmental economics typically teaches students that the design and evaluation of a policy to deal with an environmental problem boils down to cost benefit analysis. Marginal cost is an economic concept that measures the cost of an additional unit. As shown in this paper one important factor that influences maccs are energy prices. A research training opportunity is currently available at the u. Both carbon prices and cheap natural gas reduce, in a nearly identical manner. Perman, roger, 1949 natural resource and environmental economics. Pollution emissions, environmental policy, and marginal abatement. Moreover, many of the agents of an economy are acutely aware of such. For this purpose, marginal abatement cost mac curves, which contrast marginal abatement cost and total emission abatement, have been frequently used in the past to illustrate the economics of climate change mitigation and have contributed to decision making in the context of climate policy. Marginal abatement cost is the cost associated with eliminating a unit of. Economic analysis of methane emission reduction opportunities. The marginal abatement cost, in general, measures the cost of reducing one more unit of pollution.
Niggol seo, in the behavioral economics of climate change, 2017. Using marginal abatement cost curves to realize the economic. Icf 400 university ave, 17th floor toronto, on m5g 1s5 1. Pollution emissions, environmental policy, and marginal abatement costs. Pdf environmental economics for environmental protection. The abatement cost function illustrated in chart 1 shows the marginal cost of preventing pollution. This guidance provides an overview of the abatement cost methodology which is designed. See all exact resources in easypol under the resource package. Abatement cost curves for climate action in cities. Robinson, in handbook of environmental economics, 2018. Pdf natural resource and environmental economics natural.
Marginal abatement cost curves for policy making expertbased. The economics of environmental quality 79 pollution controla general model 80 pollution damages 80 damage functions 82 marginal damage functions 84 damages and uncertainty 86 damages and time 87 abatement costs 87 abatement cost functions 88 aggregate marginal abatement costs 93 the socially efficient level of emissions 95. In other words, that the cost referred to is the cost of reducing emissions while producing the same output. For most pollutants, marginal abatement costs typically. The marginal cost of abatement is equalized over all polluting. The world bank has collaborated and is collaborating. Inferring carbon abatement costs in electricity markets. On the impact of innovation on the marginal abatement cost. Although marginal abatement costs can be negative, such as when the low carbon. Assume two polluters and equal initial allocation of permits to each of them. Longterm mitigation strategies and marginal abatement cost.
Natural resource and environmental economics roger perman, yue ma, james mcgilvray. The benefitcost or the nocost paradigm, journal of economic perspectives fall 1995, p. Marginal abatement costs and marginal welfare costs for. Natural resource and environmental economics roger perman yue ma james mcgilvray michael common 3rd edition. Is it normally implicit in the use of these terms in economics that output is held constant. The purpose of this paper is to thoroughly investigate this claim in a simple theoretical framework by introducing innovation in the production function of. In both years pollution abatement operating costs are less than 1% of total output while pollution abatement capital expenditures are less than 7% and 5% of total new capital expenditures in 1994 and 2005, respectively. Abatement cost is the cost of reducing environmental negatives such as pollution. In the environmental economics literature, these static costs are an element in creating what is called a marginal abatement cost mac curve, which plots out the marginal costs of achieving a cumulative level of emissions abatement in order from the lowest to highest cost technology or measure.
The results show that i fdi firms in polluting industries tend to locate in provinces with higher potential abatement costs savings adjusted for local environmental regulation. Using marginal abatement cost curves to realize the economic appraisal of climate smart agriculture policy options 1 the ex ante carbonbalance tool 1 summary the afolu sector agriculture, forestry, land use is directly linked with climate change issues, on an environmental aspect as well as on an economical and social aspect food security. Marginal abatement cost curves in general equilibrium. When rms abatement costs are private information, explain why a more complex regulation.
Exam december 2011 answer to the short questions and two problems. Let us further assume that the highdamage country is also a low marginal abatement cost country, whereas the lowdamage country is also a high marginal abatement cost country. Isbn 0958472882 preface this document is one of a series of overview information documents on the concepts of, and approaches to, integrated environmental management iem. Environmental economics is the study of how the economy a. At the initial level of allocation of permits, marginal cost of abatement is lower for firm 2. Marginal abatement cost curves maccs are one of the favorite instruments to analyze the impacts of the implementation of the kyoto protocol and emissions trading. October 24, 2016 abstract this paper examines how carbon pricing would reduce emissions in the electricity sector.
Moreover, the cost of emissions control and the price paid for remaining emissions will be passed forward into the prices of. A revealed preference approach using the shale revolution joseph a. Well written and rigorous in its approach, this third edition follows in the vein of previous editions and continues to provide a comprehensive and clear. Deat 2004 environmental economics, integrated environmental management, information series 16, department of environmental affairs and tourism deat, pretoria. A mac curve provides information on abatement costs and abatement potentials for a set of mitigation measures, and ranks them according to their cost, from the least to the most expensive fig. Natural resource and environmental economics is among the leading textbooks in its field. Abatement costs are generally incurred when corporations are. Environmental economics was a major influence on the theories of natural capitalism and environmental finance, which could be said to be two subbranches of environmental economics concerned with resource conservation in production, and the value of biodiversity to humans, respectively. In the economics of pollution control, frequent reference is made to abatement cost andor marginal abatement cost. Both environmental damage and associated abatement costs may differentially affect. The empirical results show that, for most industries during the 1970s and 1980s, abatement investment stimulates productive investment. In the presence of abatement cost uncertainty, the choice of instrument affects the expected efficiency gains. Abatement cost guidance for valuing changes in air quality.340 223 314 666 1077 1019 1114 1383 675 1141 600 191 1278 1359 1050 998 1584 521 76 1129 838 1379 693 1190 112 82 126 1243 660 926 642