Abatement cost is the cost of reducing environmental negatives such as pollution. Marginal cost is an economic concept that measures the cost of an additional unit. The marginal abatement cost (MAC), in general, measures the cost of reducing one more unit of pollution.
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Although marginal abatement costs can be negative, such as when the low carbon option is cheaper than the business-as-usual option, MACs often rise steeply as more pollution is reduced.
Marginal abatement costs are typically used on a marginal abatement cost curve (MACC) or MAC curve, which shows the marginal cost of additional reductions in pollution.
Usage
Carbon traders use MAC curves to derive the supply function for modelling carbon price fundamentals. Power companies may employ MAC curves to guide their decisions about long-term capital investment strategies to select among a variety of efficiency and generation options. Economists have used MAC curves to explain the economics of interregional carbon trading. Policy-makers use MAC curves as merit order curves, to analyze how much abatement can be done in an economy at what cost, and where policy should be directed to achieve the emission reductions.
However, MAC curves should not be used as abatement supply curves (or merit order curves) to decide which measures to implement in order to achieve a given emission-reduction target. Indeed, the options they list would take decades to implement, and it may be optimal to implement expensive but high-potential measures before introducing cheaper measures.
Criticism
The way that MAC curves are usually built has been criticized for lack of transparency and the poor treatment it makes of uncertainty, inter-temporal dynamics, interactions between sectors and ancillary benefits.
Examples of existing MAC curves
Various economists, research organizations, and consultancies have produced MAC curves. Bloomberg New Energy Finance and McKinsey & Company have produced economy wide analyses on greenhouse gas emissions reductions for the United States. ICF International produced a California specific curve following AB-32 legislation as have Sweeney and Weyant.
The Wuppertal Institute for Climate, Environment and Energy produced several marginal abatement cost curves for Germany (also called Cost Potential Curves), depending on the perspective (end-user, utilities, society).
The US Environmental Protection Agency has done work on a MAC curve for non carbon dioxide emissions such as methane, N2O, and HFCs. Enerdata and LEPII-CNRS (France) produce MAC curves with the Prospective Outlook on Long-term Energy Systems (POLES) model for the 6 Kyoto Protocol gases. These curves have been used for various public and private actors either to assess carbon policies or through the use of a carbon market analysis tool.
The World Bank 2013 low-carbon energy development plan for Nigeria, prepared jointly with the World Bank, ulitizes MAC curves created in Analytica.