The marginal cost of carbon emissions abatement across sectors

Abstract

The marginal cost of carbon emission reduction is a crucial metric for assessing the economic and environmental implications of climate change mitigation policies. This study provides a comprehensive analysis of the marginal cost of carbon emissions reductions across 546 sectors of the U.S. economy, employing a structural decomposition analysis and a partial hypothetical extraction method. The results reveal substantial heterogeneity in the marginal abatement costs across sectors, with estimates ranging from $27.52 to $16,899 per ton of CO2 emission averted. The distribution of marginal abatement costs is found to be right-skewed, with many sectors exhibiting costs below $500 per ton, while a few sectors exceed $5,000 per ton. This finding suggests that a carbon price between $50 and $500 per ton could lead to significant abatement across a wide range of sectors, covering approximately 52% of total emissions. However, the presence of a long tail of high-cost sectors highlights the challenges and potential economic disruptions associated with a uniform carbon pricing approach. Our analysis highlights the importance of designing climate policies that consider the unique characteristics and abatement opportunities of each sector.

Citation

Guo, Jinggang; Prestemon, Jeffrey P. 2025. The marginal cost of carbon emissions abatement across sectors. Applied Economics, 58(12): 2278-2288. https://doi.org/10.1080/00036846.2025.2474251