This paper employs a simulation model of the European power sector in order to analyze the abatement response to a carbon dioxide (CO2) price through fuel switching. Abatement is shown to depend on the price of allowances, but, more importantly, on the load level of the system and the ratio between natural gas and coal prices. The interplay of these determinants vitiates any simple relation between a CO2 price and abatement and requires the development of more than two-dimensional graphics to illustrate these complex relationships. In terms of the literature on the use of marginal abatement cost curves (MACCs), the study finds that MACCs are not robust as usually defined and suggests that the more complex topography developed in this paper might be more helpful in visualizing this abatement response to a CO2 price.
1 December 2009