Carbonomics returns

The past, present and future cost of decarbonisation

The marginal abatement cost (MAC) curve is an important tool for carbon market investors.

Sloping upwards from left to right, the MAC curve gradually steepens as additional tonnes of carbon emissions get increasingly more difficult, and hence more costly, to abate.

The marginal carbon abatement cost, the cost of abating the last tonne of emissions required to meet a target, is one way that investors can get a fix on where carbon prices need to be in the future. I’ve argued in recent articles that the marginal cost is dynamic, and one of the main factors that influences it is technological progress (see Carbon's shifting anchor).

However, innovation does not simply occur, by itself, in a vacuum. Technological progress is only made if there are the right incentives, and the economic conditions are such that the innovation is commercially viable to exploit.

In this article I review how the global MAC curve for carbon has changed over the past few years and why, and then consider what current incentives and macroeconomic conditions mean for the future of the curve.