Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation
The optimal timing, sectoral distribution, and cost of greenhouse gas emission reductions is different when abatement is obtained though abatement expenditures chosen along an abatement cost curve, or through investment in low-carbon capital. In th...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2013/04/17606425/marginal-abatement-costs-differ-across-sectors-effect-low-carbon-capital-accumulation http://hdl.handle.net/10986/15559 |
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okr-10986-155592021-04-23T14:03:19Z Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane ABATEMENT COST ABATEMENT COSTS ABATEMENT POTENTIAL AFFILIATED ORGANIZATIONS AMOUNT OF ABATEMENT ASYMMETRIC INFORMATION BASELINE EMISSIONS CAPITAL COST CAPITAL STOCKS CARBON BUDGET CARBON EMISSIONS CARBON FOSSIL FUELS CARBON PRICE CARBON PRICES CARBON TAX CARBON TAXES CLIMATE CLIMATE CHANGE CLIMATE CHANGE MITIGATION CLIMATE CHANGE MITIGATION POLICIES CLIMATE POLICY CO2 COAL COMBUSTION COST FUNCTIONS COST OF CAPITAL CUMULATIVE EMISSIONS DECISION MAKING DEVELOPMENT POLICY DISCOUNT FACTOR DISCOUNT RATE ECOLOGICAL ECONOMICS ELECTRIC CARS EMISSION TRADING EMISSION TRADING SYSTEM EMISSIONS FROM HOUSEHOLDS ENERGY ECONOMICS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICIES ENVIRONMENTAL POLICY EXPENDITURES EXTERNALITIES FINANCIAL SUPPORT FOSSIL FUEL FOSSIL FUELS GHG GLOBAL WARMING GREEN INNOVATION GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSION GREENHOUSE GAS EMISSION REDUCTIONS IMPORTS INCREASING RETURNS INVESTMENT BEHAVIOR INVESTMENT DECISIONS INVESTMENT STRATEGY IPCC LABOR SUPPLY LOW-CARBON MARGINAL ABATEMENT MARGINAL ABATEMENT COST MARGINAL BENEFITS MARGINAL COST MARGINAL COSTS MARGINAL PRICE MARGINAL PRODUCTIVITY MARKET FAILURE MARKET FAILURES MONETARY FUND MULTIPLIERS OIL OPPORTUNITY COSTS OPTIMIZATION PARETO OPTIMUM POLICY IMPLICATIONS POLITICAL ECONOMY PORTFOLIO POWER PLANTS POWER SECTOR PRESENT COST PRESENT VALUE PRICE SIGNAL PRODUCTION FUNCTION PUBLIC ECONOMICS QUANTITY OF ABATEMENT RENEWABLE RESOURCES RESERVOIRS RESOURCE ECONOMICS RETROFITTING SOCIAL COST OF CARBON TAXATION The optimal timing, sectoral distribution, and cost of greenhouse gas emission reductions is different when abatement is obtained though abatement expenditures chosen along an abatement cost curve, or through investment in low-carbon capital. In the latter framework, optimal investment costs differ in each sector: they are equal to the value of avoided carbon emissions, minus the value of the forgone option to invest later. It is therefore misleading to assess the cost-efficiency of investments in low-carbon capital by comparing levelized abatement costs, that is, efforts measured as the ratio of investment costs to discounted abatement. The equimarginal principle applies to an accounting value: the Marginal Implicit Rental Cost of the Capital (MIRCC) used to abate. Two apparently opposite views are reconciled. On the one hand, higher efforts are justified in sectors that will take longer to decarbonize, such as urban planning; on the other hand, the MIRCC should be equal to the carbon price at each point in time and in all sectors. Equalizing the MIRCC in each sector to the social cost of carbon is a necessary condition to reach the optimal pathway, but it is not a sufficient condition. Decentralized optimal investment decisions at the sector level require not only the information contained in the carbon price signal, but also knowledge of the date when the sector reaches its full abatement potential. 2013-09-04T15:26:32Z 2013-09-04T15:26:32Z 2013-04 http://documents.worldbank.org/curated/en/2013/04/17606425/marginal-abatement-costs-differ-across-sectors-effect-low-carbon-capital-accumulation http://hdl.handle.net/10986/15559 English en_US Policy Research Working Paper;No. 6415 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ABATEMENT COST ABATEMENT COSTS ABATEMENT POTENTIAL AFFILIATED ORGANIZATIONS AMOUNT OF ABATEMENT ASYMMETRIC INFORMATION BASELINE EMISSIONS CAPITAL COST CAPITAL STOCKS CARBON BUDGET CARBON EMISSIONS CARBON FOSSIL FUELS CARBON PRICE CARBON PRICES CARBON TAX CARBON TAXES CLIMATE CLIMATE CHANGE CLIMATE CHANGE MITIGATION CLIMATE CHANGE MITIGATION POLICIES CLIMATE POLICY CO2 COAL COMBUSTION COST FUNCTIONS COST OF CAPITAL CUMULATIVE EMISSIONS DECISION MAKING DEVELOPMENT POLICY DISCOUNT FACTOR DISCOUNT RATE ECOLOGICAL ECONOMICS ELECTRIC CARS EMISSION TRADING EMISSION TRADING SYSTEM EMISSIONS FROM HOUSEHOLDS ENERGY ECONOMICS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICIES ENVIRONMENTAL POLICY EXPENDITURES EXTERNALITIES FINANCIAL SUPPORT FOSSIL FUEL FOSSIL FUELS GHG GLOBAL WARMING GREEN INNOVATION GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSION GREENHOUSE GAS EMISSION REDUCTIONS IMPORTS INCREASING RETURNS INVESTMENT BEHAVIOR INVESTMENT DECISIONS INVESTMENT STRATEGY IPCC LABOR SUPPLY LOW-CARBON MARGINAL ABATEMENT MARGINAL ABATEMENT COST MARGINAL BENEFITS MARGINAL COST MARGINAL COSTS MARGINAL PRICE MARGINAL PRODUCTIVITY MARKET FAILURE MARKET FAILURES MONETARY FUND MULTIPLIERS OIL OPPORTUNITY COSTS OPTIMIZATION PARETO OPTIMUM POLICY IMPLICATIONS POLITICAL ECONOMY PORTFOLIO POWER PLANTS POWER SECTOR PRESENT COST PRESENT VALUE PRICE SIGNAL PRODUCTION FUNCTION PUBLIC ECONOMICS QUANTITY OF ABATEMENT RENEWABLE RESOURCES RESERVOIRS RESOURCE ECONOMICS RETROFITTING SOCIAL COST OF CARBON TAXATION |
| spellingShingle |
ABATEMENT COST ABATEMENT COSTS ABATEMENT POTENTIAL AFFILIATED ORGANIZATIONS AMOUNT OF ABATEMENT ASYMMETRIC INFORMATION BASELINE EMISSIONS CAPITAL COST CAPITAL STOCKS CARBON BUDGET CARBON EMISSIONS CARBON FOSSIL FUELS CARBON PRICE CARBON PRICES CARBON TAX CARBON TAXES CLIMATE CLIMATE CHANGE CLIMATE CHANGE MITIGATION CLIMATE CHANGE MITIGATION POLICIES CLIMATE POLICY CO2 COAL COMBUSTION COST FUNCTIONS COST OF CAPITAL CUMULATIVE EMISSIONS DECISION MAKING DEVELOPMENT POLICY DISCOUNT FACTOR DISCOUNT RATE ECOLOGICAL ECONOMICS ELECTRIC CARS EMISSION TRADING EMISSION TRADING SYSTEM EMISSIONS FROM HOUSEHOLDS ENERGY ECONOMICS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICIES ENVIRONMENTAL POLICY EXPENDITURES EXTERNALITIES FINANCIAL SUPPORT FOSSIL FUEL FOSSIL FUELS GHG GLOBAL WARMING GREEN INNOVATION GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSION GREENHOUSE GAS EMISSION REDUCTIONS IMPORTS INCREASING RETURNS INVESTMENT BEHAVIOR INVESTMENT DECISIONS INVESTMENT STRATEGY IPCC LABOR SUPPLY LOW-CARBON MARGINAL ABATEMENT MARGINAL ABATEMENT COST MARGINAL BENEFITS MARGINAL COST MARGINAL COSTS MARGINAL PRICE MARGINAL PRODUCTIVITY MARKET FAILURE MARKET FAILURES MONETARY FUND MULTIPLIERS OIL OPPORTUNITY COSTS OPTIMIZATION PARETO OPTIMUM POLICY IMPLICATIONS POLITICAL ECONOMY PORTFOLIO POWER PLANTS POWER SECTOR PRESENT COST PRESENT VALUE PRICE SIGNAL PRODUCTION FUNCTION PUBLIC ECONOMICS QUANTITY OF ABATEMENT RENEWABLE RESOURCES RESERVOIRS RESOURCE ECONOMICS RETROFITTING SOCIAL COST OF CARBON TAXATION Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation |
| relation |
Policy Research Working Paper;No. 6415 |
| description |
The optimal timing, sectoral
distribution, and cost of greenhouse gas emission reductions
is different when abatement is obtained though abatement
expenditures chosen along an abatement cost curve, or
through investment in low-carbon capital. In the latter
framework, optimal investment costs differ in each sector:
they are equal to the value of avoided carbon emissions,
minus the value of the forgone option to invest later. It is
therefore misleading to assess the cost-efficiency of
investments in low-carbon capital by comparing levelized
abatement costs, that is, efforts measured as the ratio of
investment costs to discounted abatement. The equimarginal
principle applies to an accounting value: the Marginal
Implicit Rental Cost of the Capital (MIRCC) used to abate.
Two apparently opposite views are reconciled. On the one
hand, higher efforts are justified in sectors that will take
longer to decarbonize, such as urban planning; on the other
hand, the MIRCC should be equal to the carbon price at each
point in time and in all sectors. Equalizing the MIRCC in
each sector to the social cost of carbon is a necessary
condition to reach the optimal pathway, but it is not a
sufficient condition. Decentralized optimal investment
decisions at the sector level require not only the
information contained in the carbon price signal, but also
knowledge of the date when the sector reaches its full
abatement potential. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane |
| author_facet |
Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane |
| author_sort |
Vogt-Schilb, Adrien |
| title |
Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation |
| title_short |
Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation |
| title_full |
Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation |
| title_fullStr |
Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation |
| title_full_unstemmed |
Should Marginal Abatement Costs Differ Across Sectors? The Effect of Low-Carbon Capital Accumulation |
| title_sort |
should marginal abatement costs differ across sectors? the effect of low-carbon capital accumulation |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2013/04/17606425/marginal-abatement-costs-differ-across-sectors-effect-low-carbon-capital-accumulation http://hdl.handle.net/10986/15559 |
| _version_ |
1764429401666093056 |