Companies committed to sustainability face a dilemma. Several years ago, clean energy procurement in the form of virtual power purchase agreements (vPPAs) could support decarbonization efforts AND reduce energy costs. Today, the picture is more complex, with many vPPAs forecasted to increase cost and risk over the contract lifetime. This reversal has left many sustainability leaders scrambling to maintain their decarbonization momentum while managing costs. To better understand their decarbonization pathways, these leaders are revisiting their assumptions underpinning a popular data visualization tool: the marginal abatement cost (MAC) curve.

What is a marginal abatement cost curve?

Also known as an abatement cost curve, a MAC curve provides a comprehensive view of  available decarbonization measures, ranked by their cost-effectiveness as measured in $/tons of CO2 equivalent (tCO2e). The chart helps organizations identify low-hanging fruit such as energy efficiency, explore mid-tier options like distributed generation and community solar, and strategically plan for more advanced electrification and related clean energy procurement efforts.

The curve is typically shown as a bar chart, with each bar representing a specific emission reduction measure (e.g., energy efficiency, community solar, etc.), with the most cost-effective actions on the left and the more expensive and complex measures on the right. The width of each bar indicates the potential emissions reduction impact of that measure, and the height shows the cost per unit of emissions reduced. (Negative costs indicate measures that save money, while positive costs indicate actions that cost money.)  

Why would I use an abatement cost curve?

Abatement cost curves allow decision-makers to view and compare a range of decarbonization options.

They help companies identify actions that offer the greatest emissions reductions per dollar spent. Energy efficiency measures, for instance, typically have relatively low upfront costs and a short (or immediate) payback period, which means they can reduce emissions and deliver net savings. Companies can explore various measures and determine the height (cost) and the width of the bars, i.e., the total emissions reduction opportunity for their specific operations.

Working to the right of the abatement curve, companies can understand how much it will cost to implement more ambitious decarbonization levers that combine inter-related measures like electrification and  clean energy procurement.

Marginal abatement cost curves aren’t perfect tools. But with the birds-eye view they provide of possible energy-saving and emission-reducing actions, organizations can prioritize investments and develop a strategic, data-driven, and credible approach to decarbonization.

What decarbonization measures appear on abatement cost curves?

Most companies begin their decarbonization efforts by focusing on reducing usage (efficiency) and electrifying operations which correspond to their direct emissions. After that, they typically focus on securing clean electricity supply for their electric consumption. Finally, companies turn to their supply chain to ensure their business partners are also decarbonizing their operations.

Common emissions reduction measures found on the left side of the abatement curve include energy efficiency improvements, switching to LED lighting, or optimizing HVAC systems. Because they usually offer immediate savings, these measures are the most logical and attractive starting point for most organizations.

As companies complete activities with the shortest payback period, they move on to measures that require additional investments, such as upgrading to more efficient equipment, transitioning to EV fleets, or enrolling in community solar programs.

Importantly, some initiatives that fall in the middle of the curve aren’t cost-effective or available for companies in all geographies. For instance, community solar and distributed generation tend to be most cost-effective where local policies incentivize them. Energy storage may work for companies in markets with high demand charges (i.e., where they can manage peak usage with onsite storage). Tax transfer credits (where a company finances projects and earns a return) are another popular option that works best for larger companies with significant tax appetites.

Once companies have exhausted measures in the NPV positive and neutral sections (the left and middle sections of the chart), they’ll continue moving to the right of the curve. Initiatives in this section typically include those with negative NPV, such as redesigning products to lower their carbon impact, procuring clean energy via onsite generation or vPPAs, purchasing carbon removal products, or engaging suppliers to reduce their emissions.

While the activities on the far right of the curve are typically the most complex and costly, they’re necessary elements of ambitious decarbonization goals.

A helpful planning tool

An abatement curve is constantly changing, based not only on a company’s decarbonization progress, but also on factors such as policy changes and technology costs.

Next up, we’ll share a short article exploring the dynamic nature of abatement curves, progression along the curve, some shortcomings of the tool, and the importance of ongoing analysis.

Regardless of shortcomings, abatement curves can be a helpful tool for companies seeking to plan for full decarbonization. They’re especially helpful for organizations that have stalled on clean energy procurement but want to maintain their emissions reduction momentum.

If you’re not an energy industry expert, it’s crucial to have the right long-term partner to guide you on your decarbonization journey. Verse’s software is designed to be simple, and our services involve a team with combined decades of experience buying and managing clean power for some of the world’s biggest companies.

Stay tuned for our next installment on dynamic abatement curves and contact us if you’d like to learn more about support for your decarbonization efforts.