Defossilisation of the industrial sector - A techno-economic bottom-up approach to determining CO2 abatement costs

This paper presents an approach to determining carbon dioxide (CO2) abatement cost curves for industries based on techno-economic data and input-output analyses of conventional and low-carbon industrial production systems. Therefore, it outlines the determination of the fabrication costs and CO2 intensities of products by means of the example goods primary steel, methanol, and ammonia. By bringing together future marginal abatement costs of CO2 emissions from several industries, comparing the differences in specific production costs and CO2 intensities of the conventional means of production and the low-carbon alternative, a marginal abatement cost curve can be constructed to derive potential transformation paths for the industrial sector and facilitate the adoption of low-carbon technologies. Moreover, marginal abatement cost curves constitute a tool to derive future CO2 prices in a cap-and-trade system on the basis of fundamental data. The results show that even when incorporating learning curves of low-carbon technologies, none of the low-carbon production systems examined is likely to become cost-competitive with the conventional means without considering a CO2 price. Moreover, the results suggest that, regardless of the scenario and year under investigation, the abatement costs of ammonia production are the lowest among the goods considered, and methanol entails the highest abatement costs of CO2 emissions, while the abatement costs of primary steel are between those of ammonia and methanol. The method presented can be expanded to the industrial production of other goods. Further research could derive a merit order curve for the industrial sector to propose defossilisation paths under a diminishing sectoral CO2 budget over time.