The meta-technology cost ratio: An indicator for judging the cost performance of CO2 reduction

Abstract

This paper constructs an innovative ratio of meta-technology cost (MTCR) by combining the meta-frontier framework and shadow price model. This ratio is not only an indicator to account for country-specific technology heterogeneity or technology heterogeneity across a group of countries to measure improvement toward the meta-frontier. This ratio also computes the absolute value difference between the real and ideal minimum marginal abatement costs for the non-market good CO2 to achieve specific emission reduction. An equally weighted combination of technological readiness and innovation is used to classify countries into groups. The value of the MTCR via the computation of the meta marginal abatement cost (MACmeta) and group marginal abatement cost (MACgroup-k) allows us to identify the possible improvement of marginal abatement cost (MAC) in absolute value. That is, observation of the MTCR, along with its components the MACmeta and MACgroup-k, provides more intuitive and comprehensive information for commanding the cost performance of CO2 reduction than the traditional meta-technology ratio alone.