What Is Marginal Abatement Cost?

Marginal abatement cost is the expense associated with eliminating a unit of pollution. As the amount of pollution produced approaches zero, this cost tends to rise, because it becomes more and more expensive to prevent the pollution. This concept can also be applied to environmental cleanup, where it refers to the costs associated with cleaning up a unit of pollution, rather than preventing it in the first place. Economists and businesses can use this concept in optimization problems to balance the costs of pollution with the desire for environmental responsibility.

One way to look at the marginal abatement cost is on a cost curve, showing the expense per additional unit of pollution. In some cases, multiple forms of pollution may be involved, in which case a cost curve may need to be charted with several different parameters. The point where these curves meet may represent the optimal solution, showing the point at which a company can eliminate pollution most efficiently. Continuing along the cost curve might cause expenses to become unacceptably high.

If the marginal abatement cost would be considerable, it might not balance out with the value of the goods and services produced. Companies typically want to find a point as close to zero emissions as possible, but consider the growing expense with each additional unit of pollution. Low abatement costs might cover activities like installing filters to trap particulates, for example. Higher costs might require new equipment or entirely new processes, which can become expensive.

Businesses are not the only entity that use marginal abatement cost. Nations may use it for energy and policy planning. They can consider the pollution generated by their activities, and may develop a plan for reduction. Part of the plan may include the creation of a cost curve to find the point of most efficiency. At this point, costs for preventing or cleaning up pollution do not significantly offset the value they provide.

Such equations can also be used by regulators to determine how much pollution an industry should be able to prevent or clean up, using marginal abatement cost. If individual firms disagree with the assessment, they could need to provide information to back up their claims. Companies might be able to argue that proposed regulations would effectively force them out of business because of the high marginal abatement cost. Under this argument, the government might grant an extension or exemption on regulatory compliance.