Cost Concepts for Climate Mitigation

A new paper in Climate Change Economics by Paltsev and Capros lays out the different metrics one can use to assess the costs of climate change mitigation. The main content of the paper has been around for a while in working papers and a book chapter, which I have cited previously. The paper makes the following points inter alia:

• Total costs of abatement depend on both the marginal cost and the amount of emissions abated, as we discussed in our paper linked above.
• In a second best world where there are existing distorting taxes, the costs of abating emissions are greater than simply integrating the area under a marginal abatement cost curve.
• Terms of trade effects are very important at the macro-economic level. For example, as we are finding in our current research using the G-Cubed model, the loss of GDP in OPEC countries under a climate mitigation policy would come more from the reduction in demand for oil then from domestic abatement efforts.