Developing countries exploring pathways to climate compatibility

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Technical support paper: Marginal abatement cost curves

This paper explains different approaches to using Marginal Abatement Cost (MAC) curves as a mitigation decision tool. It also demonstrates appropriate interpretation of MAC curves through illustrated examples.

The rapidly increasing greenhouse gas emissions (GHG) in the world have been proven to contribute to climate change, with dramatic harmful consequences to human communities and many non-human animal and plant species. This has led policy makers in many countries to attempt curbing national emissions. The fact that developed and developing countries have differing resources, capability and responsibilities (through either burden sharing or effort sharing), and yet are required to cooperate closely if they want to avoid the harmful consequences of climate change, complicates mitigation efforts. Despite this complexity, decisions need to be made and tools developed to aid decision-makers. Various information-processing tools (such as multi-criteria analysis) are used to aid decision-making, the most widely used being marginal abatement cost (MAC) curves.

MAC curves analyse the mitigation options available to a region or country, the emission reduction potential that would result, and the marginal abatement costs associated with their implementation. The marginal abatement cost is the cost of eliminating an additional unit of emissions (Morris, Paltsev and Reilly, 2008). MAC curves are used to compare the cost-effectiveness of different mitigation options. These curves show the set of mitigation options available to an economy to achieve increased levels of emissions reduction (Bloomberg, 2010). According to Morris, Paltsev & Reilly (2008), a MAC curve represents a relationship between abated emissions and the price of CO2. McKinsey describes a MAC curve as a curve that presents how much emissions can be abated per specific mitigation option and the associated amount of money it will cost or save you per tCO2e (Kesicki 2013; Ekins, Kesicki and Smith, 2011). McKinsey estimates cost and potential CO2 savings of the abatement option. The cost is calculated as the annual additional operating costs less the potential cost savings divided by the amount of emissions avoided. The potential of abatement to reduce CO2 is a technical potential. For example, in power supply, the potential of a technology involves the capacity and efficiency of the technology and its operation or availability. McKinsey cost curves are constructed using a mixture of bottom-up and top-down approaches. For example, in building the UK cost curve, all mitigation actions of particular relevance to the UK were subject to detailed bottom-up analysis, whereas abatements that were thought to be similar to OECD countries were estimated using top-down approaches (CBI, 2007).

The transactional and opportunity cost associated with alternative investments are not included. MAC curves have been developed for countries such as Mexico, Poland, the United Kingdom, Ireland and Nicaraqua (Casillas and Kammen, 2012; Kennedy, 2010), and organisations such as the Food and Agricultural Organisation of the United Nations and the World Bank (Bockel et al., 2012).  In each country for which the curves were developed, they were used to inform climate change policies, such as the UK’s Low Carbon Transition Plan (HM Governemnt, 2009). Besides being used to inform climate change policy, Ellerman and Decaux (1998) and Spalding-Fecher et al. (2012) developed MAC curves to analyse the benefits of the Kyoto Protocol emissions trading scheme and the clean development mechanism (CDM). Although MAC curves are currently being used extensively for mitigation actions, the MAC curve research concept was first developed in the 1980’s after the two oil price shocks with the aim of reducing oil and electricity consumption (Bockel et al., 2012).

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