1. This course is prepared under the Erasmus+ KA-210-YOU Project titled
«Skilling Youth for the Next Generation Air Transport Management»
Sustainability
Management in Aviation
The economic perspective – ‘Externalities’ and
environmental policy – Part V
Prof. Dr. Frank Fichert
Worms University of Applied Sciences
2. The economic perspective – Part V 2
Damage and abatement costs
Emissions are an (unwanted) by-product of economic activity. Therefore, the level of
emissions is determined by the level of economic activity and the technological standard of
the production process.
Emissions reduction therefore comes at a cost. One option is the use of a different
technology, causing less emissions per unit of output. However, this technology will also
cause higher costs per unit of output (otherwise the producer would use this technology
anyway). Another option is simply the reduction of output. However, then there will be no
benefit from the product and no income for the producers.
The marginal abatement cost function shows the relation between the level of emissions
reduction and the cost of emissions reduction.
3. The economic perspective – Part V 3
Marginal abatement cost function
Level of emissions e1
determined by economic
activity and technology
Increasing marginal
abatement costs (from e1
to origin) because firms
will choose ‘cheapest’
option for reducing
emissions (if they
want/have to) – application
of the ‘economic principle’
MAC
emissions
MAC
e1
4. The economic perspective – Part V 4
Marginal abatement cost function
MAC might be shifted:
- growing market
=> shift to the right
- technological progress
=> shift to the left
Area below MAC shows
total abatement cost.
MAC
emissions
MAC
e1
5. Abatement costs are easier to quantify than damage costs.
However: often no continuous function, but (irreversible) larger
‘steps’ (esp. investment into new technology)
Next step:
Combining marginal damage function and marginal abatement cost function.
The economic perspective – Part V 5
Marginal abatement cost function
=> Please continue with video/slides ‘Sust S/V 02-06’
