Where in the world is it cheapest to cut carbon emissions?

Abstract

Countries with low marginal costs of abating carbon emissions may have high total costs, and vice versa, for a given climate mitigation policy. This may help to explain different countries' policy stances on climate mitigation. We hypothesize that, under a common percentage cut in emissions intensity relative to business as usual (BAU), countries with higher BAU emission intensities have lower marginal abatement costs, but total costs relative to output will be similar across countries, and under a common carbon price, relative total costs are higher in emission-intensive countries. Using the results of the 22nd Energy Modeling Forum (EMF-22), we estimate marginal abatement cost curves for the US, EU, China and India, which we use to estimate marginal and total costs of abatement under a number of policy options currently under international debate. This analysis provides support for our hypotheses, although its reliability is limited by the shortcomings of the EMF-22 models and the degree to which our econometric model can adequately account for the substantial differences among them. © 2011 The Authors. AJARE © 2011 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Asia Pty Ltd.