Construction of the Marginal Abatement Cost Curve: Retrofitting Carbon Capture and Storage in Australia

Abstract

Marginal abatement cost curves are a principal tool used for measuring the relative economic impact of emissions abatement mechanisms. Abatement curves can be constructed using either a top-down approach based on aggregated microeconomic models or using a bottom-up approach based on an engineering assessment that analyses different technical potentials for emission reductions. While top-down models offer simplicity and ease of interpretation, they are not as robust as the bottom-up approach, particularly for assessing the implications of new technologies such as carbon capture and storage (CCS). Using a bottom-up approach and incorporating real options analysis, this study redefines the relative abatement costs for retrofitting post-combustion CCS technology to coal-fired generators and then reconstructs the Australian marginal emissions abatement curve. The revised curve provides power generators and other industry sectors with more accurate and stable abatement cost estimates for these technologies relative to alternate abatement options.