September 5, 2023

Closing the gap to 1.5°: What can we learn from Marginal Abatement Cost Curves?

There is a significant gap between the warming implied by G20 countries’ combined decarbonisation policies and the commitments of the Paris Agreement. This study assesses how G20 countries might close this gap and ‘get-back-on track’ for a 1.5°C aligned trajectory by 2030.

Using Marginal Abatement Cost Curves (MACC), we evaluate the sectors and kinds of technologies that could deliver the required emissions abatement between now and 2030. We do this at the G20 level and for each member state in turn, assuming that abatement occurs where it is most economically efficient.

What our research means for investors:

This framework allows us to identify the primary avenues (in terms of sectors and technologies) for the G20 and its member states to economically and effectively reduce carbon emissions. It helps to identify the sectors with the greatest potential for emission reduction and suggest the optimal technologies to deploy for high-efficiency abatement. Investors can use this information to contextualise decarbonisation pathways for sovereign issuers.

Notably, we find that G20 countries may already have a significant majority of the tools required to accelerate decarbonisation towards a 1.5°C trajectory. Half of the abatement needed to ‘get back on track’ at the G20 level can potentially be met through ready-to-use decarbonisation technologies like renewables, with a further third of decarbonisation potentially being met by improving energy and resources efficiency.

Points of differentiation:

  • The novelty of this approach lies primarily in bringing together two important and unique datasets:
    • First, the Beyond Ratings’ sovereign climate data (specifically the CLAIM methodology) that allows us to calculate country level carbon budgets under specific warming scenarios (e.g. 1.5°C aligned trajectories) and timeframes
    • Second, detailed marginal abatement cost curves (MACC) produced by Enerdata, which offer a sectoral breakdown of the marginal cost of abating emissions for each sector in each jurisdiction
  • Bringing together this data allows us to propose how countries might most efficiently ‘get-back-on-track’ for 1.5°C aligned trajectories by 2030, breaking this down by sector and technology type. This is particularly novel for being available at both G20 and member state level.