How Inertia and Limited Potentials Affect the Timing of Sectoral Abatements in Optimal Climate Policy

This paper investigates the optimal timing of greenhouse gas abatement efforts in a multi-sectoral model with economic inertia, each sector having a limited abatement potential. It defines economic inertia as the conjunction of technical inertia -- a social planner chooses investment on persistent abating activities, as opposed to choosing abatement at each time period independently -- and increasing marginal investment costs in abating activities. It shows that in the presence of economic inertia, optimal abatement efforts (in dollars per ton) are bell-shaped and trigger a transition toward a low-carbon economy. The authors prove that optimal marginal abatement costs should differ across sectors: they depend on the global carbon price, but also on sector-specific shadow costs of the sectoral abatement potential. The paper discusses the impact of the convexity of abatement investment costs: more rigid sectors are represented with more convex cost functions and should invest more in early abatement. The conclusion is that overlapping mitigation policies should not be discarded based on the argument that they set different marginal costs (`"different carbon prices"') in different sectors.

Bibliographic Details

Main Authors:	Meunier, Guy, Vogt-Schilb, Adrien, Hallegatte, Stephane
Language:	English en_US
Published:	World Bank, Washington, DC 2012-08
Subjects:	ABATEMENT, ABATEMENT COSTS, ABATEMENT POTENTIAL, ABATEMENT STRATEGIES, AMOUNT OF ABATEMENT, ANNUAL EMISSIONS, AUTOMOBILE, BASELINE EMISSIONS, CAPITAL STOCKS, CARBON BUDGET, CARBON ECONOMY, CARBON EMISSIONS, CARBON PRICE, CARBON PRICES, CARBON TAXES, CARBON TECHNOLOGIES, CARS, CLIMATE, CLIMATE CHANGE, CLIMATE CHANGE MITIGATION, CLIMATE CHANGE PROBLEM, CLIMATE POLICIES, CLIMATE POLICY, CLIMATIC CHANGE, CO, CO2, COAL, COST ESTIMATES, COST OF CARBON, COSTS OF ABATEMENT, CUMULATIVE EMISSIONS, DISCOUNT FACTOR, DISCOUNT RATE, ECOLOGICAL ECONOMICS, ECONOMIC COSTS, ECONOMIC SECTORS, ECONOMIC THEORY, ELASTICITY, ELECTRICITY, ELECTRICITY PRODUCTION, EMISSION, EMISSION ABATEMENT, EMISSION REDUCTIONS, EMISSIONS, EMISSIONS PATHWAYS, EMISSIONS SCENARIOS, ENERGY BUILDINGS, ENERGY ECONOMICS, ENERGY POLICY, ENERGY SAVINGS, ENVIRONMENTAL ECONOMICS, ENVIRONMENTAL POLICY, EXTERNALITIES, FORESTRY, GHG, GREENHOUSE, GREENHOUSE GAS, GREENHOUSE GAS ABATEMENT, GREENHOUSE GAS EMISSIONS, GREENHOUSE GASES, INFRASTRUCTURE DEVELOPMENT, IPCC, LAND-USE PLANNING, LOW CARBON TECHNOLOGIES, LOW-CARBON, MARGINAL ABATEMENT, MARGINAL ABATEMENT COST, MARGINAL COST, MARGINAL PRICE, MARKET FAILURES, MOBILITY, PORTFOLIO, POWER SECTOR, PRESENT VALUE, PRICE SIGNAL, RENEWABLE ENERGY, RESOURCE ECONOMICS, SCENARIOS, SOCIAL COST OF CARBON, SUBSTITUTION, SUSTAINABLE DEVELOPMENT, TAX, TEMPERATURE, TOTAL ABATEMENT COST, TOTAL COST, TOTAL COSTS, TRANSPORT, TRANSPORT SECTOR, VEHICLE, VEHICLES, WASTE,
Online Access:	http://documents.worldbank.org/curated/en/2012/08/16563648/inertia-limited-potentials-affect-timing-sectoral-abatements-optimal-climate-policy https://hdl.handle.net/10986/11991
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