A derivation of the marginal abatement cost curve

The relationship between a firm's technology and its marginal abatement cost (MAC) curve is explored. Even under the simplest specifications, the MAC curve will be kinked at some point except under a special assumption which, in reality, could easily be violated. The nondifferentiability implies that the choice of instrument under uncertainty may depend on the targeted level of emissions reduction. Also, stability conditions for dynamic tax mechanisms may be violated in the neighborhood of the kink point. A policy implication is that in some cases output restrictions are as efficient as emissions restrictions, in contrast to previous results. (C) 1999 Academic Press.