The cost of reducing CO2 emissions: Integrating abatement technologies into economic modeling

Olga Kiuila and T.F. Rutherford

Ecological Economics, 2013, vol. 87, issue C, 62-71

Abstract: We explore two methods of incorporating bottom-up abatement cost estimates into top-down modeling: an economy-wide method and a sector-specific method. Carbon emissions generally depend on technology and scale. Given the technology options, abatement is possible without a substantial reduction in scale. Otherwise the change must come purely through a reduction in demand. Our analysis shows that the cost of environmental policy is considerably overestimated by top-down models if a bottom-up abatement cost curve is not included. Using the data for the Swiss economy, we demonstrate two techniques of representing an abatement function explicitly in a computable general equilibrium model: a traditional and a hybrid (discrete technology modeling) approach. The results suggest that the current climate policy in Switzerland will not be able to move the economy towards the required 10% CO2 reduction. Both approaches provide virtually the same results when the calibration process is precisely executed, which contradicts the results of previous studies.

Keywords: Cost curve; Elasticity of substitution; Computable general equilibrium model; Hybrid modeling; Carbon tax (search for similar items in EconPapers)
JEL-codes: C68 D24 H21 Q52 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:87:y:2013:i:c:p:62-71

DOI: 10.1016/j.ecolecon.2012.12.006

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