Topic: Abatement Costs
Reducing U.S. Greenhouse Gas Emissions:
How Much at What Cost?
Dan Baneman
ECON 331
Factors behind rising emissions in the
US
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Continued expansion of US economy
Rapid growth in buildings-and-appliances and transportation
sectors
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Greater use of carbon-based power in electric power
generation
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Driven by rising population and consumption
Driven by construction of new coal-fired power plants without
carbon capture and storage (CCS) technology
Reduced absorption by forests and agricultural lands
Annual GHG emissions projected to increase by 35 percent by
2030.
–
On current path, US emissions in 2030 would exceed GHG
reduction targets in legislation by 3.5 to 5.2 gigatons
Overview of Authors’ Approach

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Authors estimated net costs and abatement benefits
in terms of CO2 equivalent reduction of more than
250 abatement options.
Grouped options into clusters based on energy use
patterns and technology features of different sectors.
Limited focus to abatement options with a
marginal cost below $50 per ton of carbon
dioxide abated.
Project a range of three outcomes for each option
and integrate the values into abatement supply
(marginal cost) curves.
Overview of Authors’ Approach

Low-range case
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Mid-range case
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Would bring annual emissions below current levels but would not
be enough to reach goals laid out in legislative proposals.
High-range case
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Would reduce annual emissions by 1.3 gigatons by 2030; not
sufficient to bring projected levels of GHG back to current levels.
Would be required to meet objectives proposed in current
legislation. However, this would require an extraordinary amount of
national commitment.
Authors focus primarily on mid-range case.
Marginal cost curve: basic theory
Price of
carbon
emissions
Marginal Cost
0
Abatement
6
A real life abatement curve
Negative marginal cost of abatement:
How is this possible?

Agency issues
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Lack of information
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Consumers can’t easily access information on energy efficiency
from different appliances, different usage techniques, etc.
Consumer desire for rapid payback
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–
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Energy efficiency: mismatch between who pays the cost and who
reaps the benefit.
i.e., Irrationally high implicit discount rate
Consumers may not properly value energy savings
Some examples later on…
Five main sectors for potential
abatement
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Buildings and appliances
Transportation
Industrial sectors
Electric power
Carbon sinks
1. Buildings and appliances (B&A)

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Emissions from B&A expected to grow faster than any other
sector, due to low efficiency and fast projected growth.
Emissions expansion due to increased emissions from:
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
Direct sources (e.g. on-site combustion of fossil fuels)
Indirect sources (e.g. electricity consumed by commercial and
residential buildings)
Fast projected growth means large potential for low-cost
abatement.
–
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Cheaper to install clean/energy-efficient technologies in new
facilities than to retrofit later on.
Thus, greater potential for low-cost abatement from expanding
industries, since this potential abatement would be achieved
through clean technologies in facilities that haven’t been
constructed yet.
Buildings and appliances (B&A)


B&A has 51 percent of abatement potential in mid-range case
(54 percent in high-range case).
Negative-cost options result from:
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Agency issues with alignment of incentives.
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Example: condominiums and energy-efficient installments.
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Builder/owner usually doesn’t pay the energy bill, but consumers only stay
for 2-3 years, which isn’t enough time to reap returns individually.
Lack of information (and high implicit discount rates).
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Example: insulation in homes
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Builders try to minimize “first cost,” and they don’t face any of the energy
costs.
Consumers usually don’t know much about insulation options.
Exacerbated by consumers overvaluing immediate costs relative to longterm savings from energy efficiency.
Result is poor insulation at a net economic loss for consumers.
Buildings and appliances (B&A):
Specific abatement opportunities
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Lighting
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Electronic equipment
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Big opportunity due to large expected growth in number and energy intensity of devices,
and large potential to improve per-unit energy consumption.
Usage improvements (e.g. fewer stand-by losses)
Better consumer knowledge (e.g. large variation in energy consumption of different types of
TVs)
HVAC (Heating, Ventilation and Air Conditioning)
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Residential lighting tends to be inefficient compared to commercial lighting. Current
technologies and new technologies being developed could result in substantial energy use
reductions. (LEDs, CFLs, etc.)
Potential rebound effect.
More efficient HVAC equipment in both initial installations and retrofits
Better building design
Again, potential rebound effect
Building shells
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Better shells in both commercial and residential buildings (e.g. insulation, reflective roof
coatings)
Much cheaper (as much as $80/ton) to install with initial construction than to retrofit
Buildings and appliances (B&A)
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Specific barriers to address:
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Information visibility
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e.g. Energy consumed by a given appliance
e.g. Information on energy savings from placing
refrigerator in cool vs. warm room
Agency issues
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Energy bill-payer may not be involved for full relevant
time period to reap returns, so incentives for energy
efficiency/GHG abatement aren’t aligned (e.g. condo
example from before).
2. Transportation
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Projected improvements in vehicle efficiency are
more than offset by growth in vehicle miles traveled,
which is a function of the number of vehicles on the
road and the average miles per vehicle.
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Sound familiar? Difference from earlier CAFE/rebound
effect discussion is that we’re considering number of total
vehicles as well as miles traveled per vehicle.
Between 2005 and 2030:
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96 million more cars and light trucks
11% increase in annual miles traveled by each vehicle.
Transportation:
Abatement opportunities
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Biofuels
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Fuel economy
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Emit less carbon
Production costs declining due to innovation (science,
refinery design)
Cellulosic biofuels have lower production costs and carbon
content than starch biofuels
Technology upgrades improving fuel efficiency
Hybrids
–
Less potential for low-cost abatement if there are efficiency
improvements from biofuels and technology
Transportation
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Barriers:
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Consumers’ willingness-to-pay for expected gas
long-term savings (a la Alcott & Wozny)
Depends on advances in cellulosic biofuel
technologies to reduce production costs
3. Industrial sector:
Abatement opportunities
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Recovery/conversion of non-CO2 GHGs (e.g.
methane)
Carbon capture and storage (CCS)
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Combined heat and power (CHP)
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Expected to become commercially available in
industrial/manufacturing settings by 2020
Cost of savings (e.g. through switching from coal to natural
gas) varies a lot by sector and geography
Energy efficiency
New product and process innovation
Industrial sectors
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Barriers:
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Energy price volatility adds risk (e.g. coal to natural gas
transition), making returns on expenditures for energy
efficiency improvements less certain.
Investment hurdles. Where improvements are widely
distributed, there may be disproportionate management
costs.
Lack of focus on energy efficiency. “The more you look, the
more you find.” Industries aren’t always aware of costsaving abatement opportunities.
4. Electric power
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Carbon Capture and Storage (CCS)
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Wind power
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Abatement cost will rise rapidly as attractive sites are unlocked and used up.
Nuclear power
Solar power
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Captures concentrated CO2 emissions at the point of generation and stores
them. Best economics when coupled with coal-fired power plants because of
high carbon concentration of exhaust gases.
Still an expensive, early-stage technology. No substantial abatement
potential until 2020, but a lot of potential afterwards.
Still expensive and relatively energy-inefficient
Continued technological improvements expected
High up-front system costs
Natural gas (e.g. from coal)
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Short-term solution, but not economically efficient for sustainable abatement
because future natural gas sources are projected to be higher-cost, raising
prices.
Electric power
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Barriers
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Technological development needed (CCS,
renewables)
5. Carbon sinks:
Abatement opportunities
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Afforestation (forest-planting) of marginal lands with low opportunity
costs.
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7% of US pastureland qualifies as marginal due to erosion and/or low
productivity. Could be converted to forestland without affecting livestock
production.
Costs: opportunity costs, conversion costs, maintenance costs.
The South has best potential to contribute (50%)
With cropland: Conservation Reserve Program (CRP) encourages landowners to take marginal cropland out of production; this could be
afforested without affecting crop production.
Tillage practices
Forest management
Winter cover crops
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Planting legume or grass cover over harvested land in winter increased
carbon-storing potential of the soil.
Also reduces fertilizer needed during growing season by 30%, so it can
save costs.
Role for policymakers
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Coordinated set of abatement policies.
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Start quickly.
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Many low-cost opportunities are “time perishable.” Negative cost options will start to
disappear (e.g. cost of instituting energy-efficient technology is cheaper with initial
construction than retrofitting).
Many negative cost options aren’t happening currently. Need policy
support for:
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Abatement options are widely distributed across sectors and geographical regions.
Thus, a policy approach that doesn’t address the full range of options risks missing
reduction targets and/or increasing total abatement costs to society.
Visibility/information (e.g. money/energy savings from different appliances, putting
refrigerator in a cool room, etc.)
Change incentives to correct agency issues (cost/benefit mismatch) (e.g. insulation
with builders vs. homeowners, condo owners vs. consumers)
Visible, sustained signals to create certainty about the price of carbon
and required emissions reductions.
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This will encourage investments in options with a long lifecycle. Lack of information is
a barrier to long-term investment.
Key take-away points:
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Almost 40 percent of low-cost (below $50/ton) abatement is achievable at
zero or negative marginal costs.
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i.e., Savings to society would offset spending.
Why hasn’t this happened already? To reiterate:
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Abatement opportunities are spread across many different sectors.
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Largest option (CCS for coal-fired power plants) offers less than 11 percent of total
abatement potential
Abatement potential and costs vary across geography.
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About 3.5 times as abatement potential (at less than $50 per ton) in the South than the
Northeast (1130 megatons vs. 330 megatons).
Sectoral variations.
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Agency issues. Mismatches between which parties incurs the costs and which parties reap the
benefits.
Lack of information about impact of individual decisions.
Consumer desire for rapid payback when an up-front investment is required.
Northeast: More low-cost B&A and transportation opportunities due to dense populations.
South: More low-cost options in industrial sectors and afforestation.
Significant abatement will require a coordinated policy response in order to
achieve abatement targets at minimal cost to society.