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Environmental and Resource Economics

, Volume 68, Issue 4, pp 915–947 | Cite as

Greenhouse Gas Abatement Cost Curves of the Residential Heating Market: A Microeconomic Approach

  • Caroline Löffler
  • Harald Hecking
Article

Abstract

In this paper, we develop a microeconomic approach to deduce greenhouse gas abatement cost curves of the residential heating sector. Our research is based on a system dynamics microsimulation of private households’ investment decisions for heating systems to the year 2030. By accounting for household-specific characteristics, we investigate the welfare costs of different abatement policies in terms of the compensating variation and the excess burden. We investigate two policies: (i) a carbon tax and (ii) subsidies on heating system investments. We deduce abatement cost curves for both policies by simulating welfare costs and greenhouse gas emissions to the year 2030. We find that (i) welfare-based abatement costs are generally higher than pure technical equipment costs; (ii) given utility maximizing households a carbon tax is the most welfare-efficient policy and; (iii) if households are not utility maximizing, a subsidy on investments may have lower marginal greenhouse gas abatement costs than a carbon tax.

Keywords

Greenhouse gas abatement costs Heat market Household behavior Pigou tax 

Abbreviations

GHG

Greenhouse gas

\(\text {CO}_2\)-eq

\(\text {CO}_2\)-equivalent

DIscrHEat

DIscrete choice HEat market model

JEL Classification

C35 C61 Q47 Q53 R21 

Notes

Acknowledgments

We would like to thank Felix Höffler, Christian Growitsch, Sebastian Kranz, Heike Wetzel and Andreas Peichl for their helpful comments and suggestions.

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Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Institute of Energy EconomicsUniversity of Cologne (EWI)CologneGermany

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