Author(s): Ackerman, F., and Bueno, R.
In: SEI-U.S. Working Paper WP-US-1102
Link to SEI author(s):
Use of McKinsey abatement cost curves for climate economics modeling
The authors describe their use of the McKinsey & Company cost curves in an integrated assessment model.
Integrated assessment models (IAMs) of climate economics require projections of the future costs of greenhouse gas abatement. The work of McKinsey & Company, an international consulting firm, provides global estimates of marginal abatement cost curves, based on data on the costs of numerous emission-reducing technologies.
This article describes the use of the McKinsey data in an IAM, the Climate and Regional Economics of Development (CRED) model.
The McKinsey studies identify a large potential for abatement with negative net costs, a finding which is controversial among economists and problematic for modeling purposes. The authors avoid this issue by using only the positive-cost McKinsey data, assigning a near-zero but positive cost to all reportedly negative-cost abatements.
The results are broadly comparable to abatement cost estimates from MIT’s EPPA model, although lower than those from some other IAMs. Even the positive-cost portion of the McKinsey data suggests that emission reduction may be cheaper than IAMs have often projected.