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Assessing the Costs of Industrial Decarbonization

Author

Listed:
  • Glenk, Gunther

    (U of Mannheim and MIT)

  • Meier, Rebecca

    (U of Mannheim)

  • Reichelstein, Stefan

    (U of Mannheim and Stanford U)

Abstract

Companies in various industries are under growing pressure to assess the costs of decarbonizing their operations. This paper develops a generic abatement cost concept to identify the cost-efficient combination of technological and operational changes firms would need to implement to drastically reduce greenhouse gas emissions from current production processes. The abatement cost curves resulting from our framework further serve as a decision tool for managers to determine the optimal abatement levels in the presence of environmental regulations, such as carbon pricing. We calibrate our model in the context of European cement producers that must obtain emission permits under the European Emission Trading System (EU ETS). We find that a price of €85 per ton of carbon dioxide (CO2), as observed on average in 2023 under the EU ETS, incentivizes firms to reduce their annual direct emissions by about one-third relative to the status quo. Yet, this willingness to abate emissions increases sharply if carbon price were to rise above the €100 per ton of CO2 benchmark.

Suggested Citation

  • Glenk, Gunther & Meier, Rebecca & Reichelstein, Stefan, 2024. "Assessing the Costs of Industrial Decarbonization," Research Papers 4202, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:4202
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    File URL: https://www.gsb.stanford.edu/faculty-research/working-papers/assessing-costs-industrial-decarbonization
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    More about this item

    JEL classification:

    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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