John Sterman just pointed me to David Levy’s newish blog, Climate Inc., which has some nice thoughts on Marginal Abatement Cost curves: How to get free mac lunches, and Whacking the MAC. They reminded me of my own thoughts on The elusive MAC curve. Climate Inc. also has a very interesting post on the psychology of US and European oil companies’ climate strategies, Back to Petroleum?.
The conclusion from How to get free mac lunches:
Of course, these solutions are not cost free ’“ they involve managerial time, some capital, and transaction costs. Some of the barriers are complex and would require large scale institutional restructuring, requiring government-business collaboration. But one person’s transaction costs are another’s business opportunity (the transaction costs of carbon markets will keep financial firms smiling). The key point here is that there are creative organizational and managerial approaches to unlock the doors to low-cost or even negative-cost carbon reductions. The carbon price is, by itself, an inefficient and ineffective tool ’“ the price would have to be at a politically infeasible level to achieve the desired goal. But we don’t have to rely just on the carbon price or on command and control; a multi-pronged attack is needed.
and Whacking the MAC:
Simply put, it will take a lot more than a market-based carbon price and a handout of free allowances to utilities to unlock the potential of conservation and energy efficiency investments. It will take some serious innovation, a great deal of risk-taking and capital, and a coordinated effort by policy-makers, investors, and entrepreneurs to jump the significant institutional and legal hurdles currently in the way. Until then, it will continue to be a real stretch to bend over the hurdles in an effort to reach all the elusive fruit lying on the ground.
Here’s my bottom line on MAC curves:
The existence of negative cost energy efficiency and mitigation options has been debated for decades. The arguments are more nuanced than they used to be, but this will not be settled any time soon. Still, there is an obvious way to proceed. First, put a price on carbon and other externalities. We’d make immediate progress on some fronts, where there are no barriers or misperceptions. In the stickier areas, there would be a financial incentive to solve the institutional, informational and transaction cost barriers that prevented implementation when energy was cheap and emissions were free. Service providers would emerge, and consumers and producers could gang up to push bureaucrats in the right direction. MAC curves would be a useful roadmap for action.