How Inertia and Limited Potentials Affect the Timing of Sectoral Abatements in Optimal Climate Policy

This paper investigates the optimal
timing of greenhouse gas abatement efforts in a
multi-sectoral model with economic inertia, each sector
having a limited abatement potential. It defines economic
inertia as the conjunction of technical inertia -- a social
planner chooses investment on persistent abating activities,
as opposed to choosing abatement at each time period
independently -- and increasing marginal investment costs in
abating activities. It shows that in the presence of
economic inertia, optimal abatement efforts (in dollars per
ton) are bell-shaped and trigger a transition toward a
low-carbon economy. The authors prove that optimal marginal
abatement costs should differ across sectors: they depend on
the global carbon price, but also on sector-specific shadow
costs of the sectoral abatement potential. The paper
discusses the impact of the convexity of abatement
investment costs: more rigid sectors are represented with
more convex cost functions and should invest more in early
abatement. The conclusion is that overlapping mitigation
policies should not be discarded based on the argument that
they set different marginal costs (`"different carbon
prices"') in different sectors.