Marginal Emissions Pathways: Drivers and Implications

Governments frequently use policies that target the expansion of a clean technology to achieve greenhouse gas emissions mitigation goals, such as those submitted by countries under the Paris Agreement. As a result of direct and indirect market adjustments induced by a particular policy, marginal emissions from expanding a clean technology may vary in the amount of clean technology, reflecting a marginal emissions pathway. This paper analyzes the economic and policy drivers of marginal emissions pathways and the implications when such pathways are non-constant. We show numerically that marginal emissions pathways for a mandate and subsidy to promote biofuels in the U.S. are non-constant in the amount of biofuel and, due to differential impacts on output markets, move in opposite directions and eventually have opposite signs. We also show that explicitly or implicitly treating marginal emissions as constant can generate significant errors in the prediction of mitigation from clean technology policies and can make it difficult to attribute mitigation from decentralized efforts to address climate change, such as the Paris Agreement.