The marginal abatement cost function with secondary waste markets

Nick Leary, Michael Zunino and Jeffrey Wagner

Ecological Economics, 2025, vol. 228, issue C

Abstract: We generalize the marginal abatement cost function concept by adding a secondary market option for the firm's emissions. From that baseline, we analyze the conditions under which the secondary market will lie dormant and strategies for efficiently activating them. We feature two contexts that are of increasing interest in the engineering and energy literatures but that are under-discussed in the economics literature: waste heat utilization from processes such as computer data centers and energy production from CO2 emission feedstock via artificial photosynthesis. Our main result is that the secondary market price for waste residuals can reduce uncontrolled emissions in the absence of an emission price instrument such as a tax. If an emission tax is already in place, we show that secondary waste market revenue reduces the efficient tax—and under certain conditions can completely replace the tax. Moreover, our model provides microeconomic support for evolutionary ecological economics perspectives and Circular Economy perspectives on how markets can be tuned to ‘waste’ less waste via policies that strengthen secondary market development.

Keywords: Artificial photosynthesis; Data center; Marginal abatement cost function; Secondary waste markets; Waste heat (search for similar items in EconPapers)
JEL-codes: D21 Q48 Q53 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:228:y:2025:i:c:s0921800924003422

DOI: 10.1016/j.ecolecon.2024.108445

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