When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment

This paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time. Moreover, optimal marginal abatement investment costs differ across sectors of the eco...

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Main Authors:	Vogt-Schilb, Adrien, Meunier, Guy, Hallegatte, Stephane
Format:	Journal Article
Published:	Elsevier 2018
Subjects:	CLIMATE CHANGE MITIGATION CLEAN CAPITAL PATH DEPENDENCE SOCIAL COST MARGINAL ABATEMENT COST TIMING CARBON POLICY GREENHOUSE GAS EMISSIONS
Online Access:	http://hdl.handle.net/10986/29238

id	okr-10986-29238
recordtype	oai_dc
spelling	okr-10986-292382021-05-25T10:54:43Z When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane CLIMATE CHANGE MITIGATION CLEAN CAPITAL PATH DEPENDENCE SOCIAL COST MARGINAL ABATEMENT COST TIMING CARBON POLICY GREENHOUSE GAS EMISSIONS This paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time. Moreover, optimal marginal abatement investment costs differ across sectors of the economy. It may be preferable to spend $25 to avoid the marginal ton of carbon in a sector where abatement capital is expensive, such as public transportation, or in a sector with large abatement potential, such as the power sector, than $15 for the marginal ton in a sector with lower cost or lower abatement potential. The reason, distinct from learning spillovers, is that reducing greenhouse gas emissions requires investment in long-lived abatement capital such as clean power plants or public transport infrastructure. The value of abatement investment comes from avoided emissions, but also from the value of abatement capital in the future. The optimal levelized cost of conserved carbon can thus be higher than the optimal carbon price. It is higher in sectors with higher investment needs: those where abatement capital is more expensive or sectors with larger abatement potential. We compare our approach to the traditional abatement-cost-curve model and discuss implications for policy design. 2018-01-26T19:25:52Z 2018-01-26T19:25:52Z 2018-03 Journal Article Journal of Environmental Economics and Management 0095-0696 http://hdl.handle.net/10986/29238 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank Elsevier Publications & Research :: Journal Article Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
topic	CLIMATE CHANGE MITIGATION CLEAN CAPITAL PATH DEPENDENCE SOCIAL COST MARGINAL ABATEMENT COST TIMING CARBON POLICY GREENHOUSE GAS EMISSIONS
spellingShingle	CLIMATE CHANGE MITIGATION CLEAN CAPITAL PATH DEPENDENCE SOCIAL COST MARGINAL ABATEMENT COST TIMING CARBON POLICY GREENHOUSE GAS EMISSIONS Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment
description	This paper finds that it is optimal to start a long-term emission-reduction strategy with significant short-term abatement investment, even if the optimal carbon price starts low and grows progressively over time. Moreover, optimal marginal abatement investment costs differ across sectors of the economy. It may be preferable to spend $25 to avoid the marginal ton of carbon in a sector where abatement capital is expensive, such as public transportation, or in a sector with large abatement potential, such as the power sector, than $15 for the marginal ton in a sector with lower cost or lower abatement potential. The reason, distinct from learning spillovers, is that reducing greenhouse gas emissions requires investment in long-lived abatement capital such as clean power plants or public transport infrastructure. The value of abatement investment comes from avoided emissions, but also from the value of abatement capital in the future. The optimal levelized cost of conserved carbon can thus be higher than the optimal carbon price. It is higher in sectors with higher investment needs: those where abatement capital is more expensive or sectors with larger abatement potential. We compare our approach to the traditional abatement-cost-curve model and discuss implications for policy design.
format	Journal Article
author	Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane
author_facet	Vogt-Schilb, Adrien Meunier, Guy Hallegatte, Stephane
author_sort	Vogt-Schilb, Adrien
title	When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment
title_short	When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment
title_full	When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment
title_fullStr	When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment
title_full_unstemmed	When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment
title_sort	when starting with the most expensive option makes sense : optimal timing, cost and sectoral allocation of abatement investment
publisher	Elsevier
publishDate	2018
url	http://hdl.handle.net/10986/29238
_version_	1764468841032712192

When Starting with the Most Expensive Option Makes Sense : Optimal Timing, Cost and Sectoral Allocation of Abatement Investment

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