Constructing Carbon Abatement Cost Curves

Companies across industries face increasing pressure to assess the costs of decarbonizing their operations. This paper develops a generic model for constructing abatement cost curves in connection with carbon dioxide emissions. The resulting abatement cost curves provide a planning tool for companies seeking to project their decarbonization pathways and to determine optimal abatement levels in response to environmental regulations such as carbon pricing. We calibrate our model in the context of European cement producers that are required to obtain emission permits under the European Emissions Trading System. We find that a price of € 85 per ton of carbon dioxide, as observed on average in 2023, incentivizes firms to reduce their annual direct emissions by about one-third relative to the status quo. Yet, this incentive increases sharply when prices rise above the benchmark of € 100 per ton of carbon dioxide.