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Carbon Abatement Costs: Why the Wide Range of Estimates?

Abstract:
Estimates of marginal abatement costs for reducing carbon emissions derived from major economic-energy models vary widely. Controlling for policy regimes we use meta-analysis to examine the importance of structural modeling choices in explaining differences in estimates. The analysis indicates that particular assumptions about perfectly foresighted consumers and Armington trade elasticities generate lower estimates of marginal abatement costs. Other choices are associated with higher cost estimates, including perfectly mobile capital, inclusion of a backstop technology, and greater disaggregation among regions and sectors. Some features, such as greater technological detail, seem less significant. Understanding the importance of key modeling assumptions, as well as the way the models are used to estimate abatement costs, can help guide the development of consistent modeling practices for policy evaluation.

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Energy Specializations: Energy Efficiency; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
Q55 - Environmental Economics: Technological Innovation
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Carbon abatement costs, climate models, carbon tax, climate policy, meta-analysis

DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No2-5


Published in Volume 27, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.