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Understand cost and impact

Leverage abatement curve to identify reduction levers, and determine cost and impact. How MACCs can help you identify the most relevant reduction levers for your business

Introducing MACCs as a tool

A marginal abatement cost curve (MACC) is a tool to help prioritize abatement levers to achieve your company’s emission reduction targets. It does so by clearly ordering abatement levers based on their GHG abatement potential and costs/savings.

Marginal abatement cost curves are widely accepted and increasingly used by companies. They can be used to answer many questions, including:

  • Lever sizing: What are the potential levers to reduce your company’s emissions footprint, how large is the reduction, and at what cost?

  • Setting targets: What is an ambitious but achievable emissions reduction target, based on climate science? For further information on setting targets, reference Chapter 3: Set target

  • Achieving targets: What levers could be implemented and how? How can your company achieve a pre-defined emissions reduction target?

  • Driving impact: What levers should your company implement as soon as possible to tangibly reduce emissions?

A MACC is usually graphed by representing on the x-axis the total abatement potential, usually at full deployment, measured on an annual basis in carbon dioxide equivalent (CO2e); and on the y-axis – marginal abatement cost or savings, measured in cost per ton of CO2e reduced (e.g., $/CO2e). Each lever is graphed as a rectangle, with the height equaling the marginal cost/savings and width conveying abatement potential. Abatement levers are then sorted by increasing cost per ton of CO2e. Your MACC’s abatement levers, when combined, would add up to your company’s total emissions reduction potential, thereby resulting in Net Zero if enough levers are applied.

Additionally, to help contextualize, a horizontal line can be graphed to indicate the social cost of carbon (the cost to society from climate change-related damages, caused by every ton of CO2e emissions, increasing with atmospheric CO2 concentrations and can thus change over time. There are many inputs that go and can go into calculating the social cost, and there are multiple models that provide estimates), internal cost of carbon, or some other helpful benchmarks. One way to then use the MACC is to first prioritize levers with net savings (negative y-values), and those below the benchmark cost.

For a quick primer on reading a MACC, see Figure 11 below:

Figure 11: MACC primer. Source: BCG.

An example MACC for a petrochemical company in Figure 12 below:

Figure 12: Exemplary abatement costs for a petrochemical company ($/t CO2e). Source: BCG.

Building a MACC

There are three high-level steps to building a marginal abatement cost curve, summarized here and in Figure 13, with more details below:

  • First, you can baseline your direct and/or indirect emissions to identify all material sources of emissions. See Chapter 2: Measure and verify for information on baselining your emissions

  • Second, you can scout a select set of relevant abatement levers to address emissions. (These are the same levers that were discussed in Step 2.2.)

  • Third, you can size your abatement potential and lever costs, leveraging tools, research, experts, and prior work

Figure 13: Three-step process for assessing abatement levers. Source: BCG.

Baselining direct and indirect emissions

A sufficiently granular emissions baseline is critical for building a MACC. This will require referencing the baseline you developed in Chapter 2: Measure and verify. You should organize your baseline with measurements for Scope 1, Scope 2, Scope 3 upstream, and Scope 3 downstream emissions, along with identifications of emissions sources (e.g., vehicles, electricity, transportation, product use). (See Figure 14).

Figure 14: Illustrative emissions baseline. Source: BCG.

Analyzing each Scope and emissions source will help you prioritize levers more effectively. Getting more granular using expert knowledge or industry benchmarking will further assist. For example, an automobile manufacturer might take a closer look at its Scope 3 upstream emissions from (I) purchased goods and services and further break down emissions by regions, plants and/or product category, as these allow for targeted actions to be defined.

Scouting relevant levers (including lifecycle carbon abatement opportunities)

You can then identify the various abatement options available to your organization, guided and sorted by the abatement approaches listed in Step 1 (including industry-specific approaches), and abatement levers discussed in Step 2 Make sure to include carbon abatement potential throughout the lifecycle of your product for greatest accuracy, including Scope 3 downstream activities like product use and end-of-life treatment.

Size abatement potential, investment, and operating cost

Next, you can characterize each abatement lever along three dimensions: abatement potential, investment (capex), and operating cost/savings (opex). The visuals below show an example of converting from fuel-fired heating to renewable heat, the (IV) renewable heat abatement lever:

1. Abatement potential – what and how much could this lever maximally abate?

2. CapEx – how much does it cost to implement the lever?

3. OpEx – what are the ongoing costs of this lever in terms of fuel, maintenance, etc.?

By comparing the above three characteristics of the implemented lever versus the status quo, you can compute the abatement potential and costs/savings from abatement. The abatement cost per ton of CO2e ($/ton of CO2e) is calculated by dividing the full cost of lever implementation with the total cumulative tons of CO2e abated, both over the lifetime of the lever. (Alternatively, you can calculate the annualized cost of abatement and divide that number by the annual CO2e abated, which should result in the same marginal abatement cost.)

When you have completed these steps for all possible levers, you should be able to create a company-specific MACC to help visualize your organization’s options for reducing its emissions.

For any selection of MACC levers, you can then readily estimate both the cost and abatement potential.

You could also determine the cost of climate inaction in your industry and region, including potential direct or implied costs on carbon or offset expenses. This may be included in the cost differential, or simply used as a point of comparison, thereby providing the full picture for staying the current course compared to a lower carbon future realized by engaging certain abatement levers (see Figure 15 for a conceptual depiction of the comparison).

Figure 15: Comparing cost of implementing abatement levers with cost of inaction. Source: BCG Client experience.