Approximation of Marginal Abatement Cost Curve

Olga Kiuila and Thomas Rutherford ()
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Thomas Rutherford: ETH Zurich, Centre for Energy Policy and Economics

No 2011-12, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: Top-down models usually include piecewise-smooth functions to describe marginal cost curves, while bottom-up models describe those curves with a step function. When a bottom-up cost curve is available, we can explicitly represent this curve with a top-down model in order to replicate its shape instead of arbitrary assumptions. We propose methods to approximate a piecewise function from a step function using constant elasticity of substitution technologies. Specifically, we consider a pollution abatement sector and calibrate the parameters of the abatement function in order to be able properly to assess the economic effects of an environmental policy. Our methodology can be applied to any sector characterized by decreasing returns to scale technologies. We conclude that the elasticities of substitution need not be estimated only on the basis of historical data, but can be precisely calibrated on the basis of engineering estimates of technology potential.

Keywords: elasticity of substitution; calibration; abatement; top-down and bottom-up modeling (search for similar items in EconPapers)
JEL-codes: C60 D24 Q53 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2011-06-09
New Economics Papers: this item is included in nep-ene and nep-env
Note: First version, 2011
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2011-12

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