Paper Accepted by AJARE

My paper with Jack Pezzey and Ross Lambie: "Where in the world is it cheapest to cut carbon emissions?" has been accepted for publication by the Australian Journal of Agricultural and Resource Economics. It will be a while till it is available online. In the meantime there is a working paper version available here. The paper arose from the observation that countries like Australia which at first glance seem to use energy wastefully and have abundant opportunities to cut emissions at low costs can have high total costs of addressing climate change because they are so emissions intensive. Where it is cheap to cut emissions depends on whether we rank countries by marginal costs of reducing emissions or by total costs of reducing emissions.

In the paper, we test this idea using the results of the models that participated in the EMF-22 climate policy simulation exercise and the results seem to support this conjecture. This might explain both debates within countries about what to do about climate change and the different stances of countries in the international negotiations. For example environmentalists might look at the cheap ways (in the marginal sense) to cut emissions in countries like Australia and be outraged that they're not happening while business might look at the total costs of meeting a given policy...

Also the paper gives estimates of the marginal abatement cost curve for the 4 main countries/regions based on the consensus of existing models. They show that to get substantial cuts in emissions on the order of the Copenhagen pledges you would need carbon prices a lot above the $23 initial price of the Australian ETS. The models might be over-estimating the cost of abatement. But when you take into account the half of Australian abatement expected to come from offsets and the amount that will be removed by direct action (RET) the amount of remaining domestic abatement required is in the ballpark of this kind of price.