Robust MACCs? The topography of abatement by fuel switching in the European power sector

Abstract

This paper employs a simulation model of the European power sector to analyse the abatement response to a CO2 price through fuel switching, one of principal means of reducing greenhouse gas emissions in any economy. Abatement is shown to depend not only on the price of allowances, but also and more importantly on the load level of the system and the ratio between natural gas and coal prices. The interplay of these different determinants vitiates any simple relation between a CO2price and abatement and requires the development of more than two-dimensional graphics to illustrate these complex relationships. In the terms of the literature on the use of marginal abatement cost curves (MACCs), we find that these MACCs are not robust as usually defined and we suggest that the more complex topography developed in this paper may be more helpful in visualizing this abatement response to a CO2 price.