Our Marginal Abatement Cost (MAC) model

Commitments to reduce GHG emissions require policymakers to identify cost-efficient means to meet their obligations. Marginal abatement cost (MAC) curves are frequently used to illustrate the economics associated with climate change mitigation by analysing the GHG emissions reduction potential of a specific activity, industry or economy, and the cost of action. This enables comparison of the relative abatement from different activities and technologies, and the potential for emissions reductions to be derived from different sectors under a wide range of costs.

RepuTex’s marginal abatement cost (MAC) model analyses costs and opportunities for emissions reductions across the Australian economy in 2020, 2030, 2040 and 2050. Initially developed over 2009-12 for the Commonwealth Department of Climate Change, the model covers 145 activities across all sectors of the Australian economy, including Agriculture, Direct Combustion, Electricity, Fugitives, Industrial, Land-use, Land use change and Forestry (LULUCF), Transport and Waste.

Our modelling approach

In analysing the cost and abatement opportunity of the activities we develop a ‘business as usual’ emissions baseline, applied as a reference point for current and future emissions in line with the modelling horizon. This may align with official government projections, or a materially different emissions reference case (such as alternative policy settings based on customer preferences). Greenhouse gas abatement volumes for each identified activity are then modelled relative to the reference case emissions baseline.

In analysing individual abatement costs and opportunities, analysis draws on a wide array of primary and secondary sources. Projected costs and abatement volumes are derived from bottom-up examination of different project types. Given the wide range of abatement costs associated with different individual projects, we apply average marginal abatement costs, which are calculated to represent the typical cost of undertaking each activity.

To calculate total abatement potential and average cost, some measures within a defined activity may be grouped together, with an average marginal abatement cost and quantity of emissions reductions calculated based on bottom-up analysis of technical and economic potentials.

“Abatement potential” is defined as the annual reduction between the baseline emissions and the emissions projection after the activity has been implemented. “Abatement costs” are defined as the annualised cost of reducing GHG emission by one tonne of carbon dioxide equivalent.

We model abatement costs assuming an ‘investor’ approach, including annualised repayments for capital expenditure and operating expenditure, along with the project cost of implementing or installing a given activity or technology. Transaction costs, institutional barriers and non-monetary costs (e.g. investment appraisal, procurement and legal and compliance costs, administrative costs of finance, etc.) are not included.

“Abatement costs and opportunities” therefore reflect the marginal cost per tonne faced by an investor to implement an emissions reduction opportunity in a given year, including the typical private costs of capital. Investment barriers faced by the market are considered, taking account of constraints such as the availability of technology, energy demand forecasts, new and expanded facility production rates, power capacity forecasts, and learning curves.

Consultation with industry experts

All RepuTex activity emissions and cost databases are validated via an extensive industry consultation and review process, ensuring that modelling outcomes remain robust and subject to continuous improvement over time.

The annual review of our MAC model is supported by consultation with expert stakeholders (across all sectors), who provide regular feedback on activities specific to their area of expertise. Feedback may include updates on technology readiness, cost assumptions and barriers to investment in the implementation of specific activities based on on-the-ground experience.

Review is particularly sought where activities are subject to rapid cange in costs (such as activities for cattle dietary supplements/seaweed, soil carbon, Negative Emissions Technologies such as CCS) or when the application of an activity is sensitive to on-the-ground barriers. Advances in abatement costs may not yet be encompassed within secondary research sources, or may be subject to considerable change due to expected technology advancements and cost reductions. Consultation with industry experts active in on-the-ground project implementation is therefore a critical component of any marginal abatement cost analysis.

RepuTex regularly engages with local experts, customers active in high emitting sectors, government and scientific organisations (such as academics at Australian universities, the Climate Change Authority, CSIRO, federal and state departments), individual land-sector participants (such as land-holders and carbon offset project proponents);  environmental organisations (such as Australian Conservation Foundation, Climate Foundation, Conservation Council, Permaculture Research Institute, Soils for Life, and The Wilderness Society) and others. External feedback is reviewed and validated, then built into our modelling assumptions and cost databases.