Sept 21 - Haewon Chon, Ph.D. Student, School of Public Policy and Joint Global Change Research Institute, University of Maryland

Getting the Most Bang for Our Buck: How Technology R&D Impacts the Cost of Climate Change Mitigation

While the magnitude of the future damages from climate change is highly uncertain, we do know that in order to mitigate this damage, it is crucial to reduce greenhouse gas emission from fossil energy consumption. At current the reduction rate in the prices of different energy sources, the cost of greenhouse gas abatement by substituting fossil energy with alternative low- or zero-carbon energy is unlikely to be trivial in the near future. R&D investment on alternative energy technologies has the potential to bring down the cost of abatement. Which technology should we invest in? How can we evaluate whether investing in solar technology is better than investing in carbon capture & storage technology? Due to uncertainties and disagreements regarding optimal abatement level and the expected magnitude of cost reduction, abatement cost comparisons under a single emission scenario will not be effective. It might be the case that, for example, investing in solar technology is more effective at a 550ppm target, while investing in CCS technology is more effective at a 450ppm target.
We present a general framework for answering the question: How should we analyze the impact of R&D on the cost of climate change mitigation? The answer ultimately depends on the changes of the marginal abatement cost (MAC) curve, rather than the changes in a point estimate of abatement cost. Using MiniCAM integrated assessment model, we have derived MAC cost curves for several potential technological changes. We explain the differences in the changes of MAC curve, in terms of the marginal deployment of the advanced technology and the energy production cost structure of the technology. Understanding the effect of technological change on MAC curve can help inform the optimal investment portfolio for greenhouse gas abatement technology.

Keywords: Climate change; Marginal Abatement Cost, Technological Change; Environmental Policy.

Full Presentation: The Value of Technology for Climate Change Mitigation, with Leon Clarke, Presented at GTSP Technical Review, JGCRI, May 23, 2007.
Applied Example: Advanced Solar R&D: Combining Economics and Expert Elicitations to Inform Climate Policy, with Erin Baker and Jeffrey Keisler, Revised and Resubmitted to Energy Economics, 2007