The Economics of Carbon Abatement: An Integrated Diagrammatic Framework

Abstract

The aim of this article is to present the economics of carbon abatement in an integrated framework with application to key policy questions. While the core ideas are well known, the innovation here is to integrate the marginal costs and benefits of carbon abatement with the market for carbon permits in a diagrammatic framework. This framework is then used to analyse a range of issues in the public debate about carbon abatement and carbon trading schemes, such as special assistance for certain industries, tax concessions on particular carbon-intensive goods such as petrol, government subsidies for renewable energy, and the effects of uncertainty and technological change.