End-of-pipe emissions abatement technologies in a CGE-model

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This paper describes how a catalogue of »end-of-pipe« abatement technologies can be incorporated into a computable general equilibrium model (CGE-model).


Firms may have the opportunity to reduce a share of their greenhouse gas emissions by using abatement technologies, that do not otherwise impact the production process.This type of »end-of-pipe« abatement technologies is typically characterized by a unit cost per abated unit of emissions as well as an abatement potential. This paper describes how a catalogue of such technologies can be encorporated into a computable general equilibrium model (CGE-model). Technology catalogues typically characerize the technologies as having constant marginal costs. This implies that a given technology is either implemented by all firms or not at all. CGE-models that are solved using constrained nonlinear optimization are not able to account for corner cases like this. However, by introducing heterogeneity between firms, the technology catalogue is able to be encorporated. This heterogeneity is used to smooth the problem, which makes it possible to solve for the firms’ choices analytically. This paper outlines how this can be done. In practice, the degree heterogeneity can be made arbitrarily small. Thus, constant marginal costs are an edge case of the described solution.