The implicit cost of carbon abatement during the COVID-19 pandemic

This paper provides novel estimates of the implicit cost of carbon abatement associated with the COVID-19 crisis. We compare that to the costs from renewable investments that would lead to similar abatement. Focusing on the Spanish economy and its power sector, we combine machine learning and simulation tools to construct a precise counterfactual of market performance in absence of the crisis. Results suggest that power sector CO2 emissions fell by 4.13 Million Tons (about 11.5%) during 2020 due to the pandemic, less than half of the actual year-on-year emissions reductions. Investing in renewables to achieve similar carbon abatement would yield an implicit cost of 60-65 Euro/Ton of CO2. Conversely, the pandemic caused a substantial GDP loss in Spain, relative to the extent of overall carbon abatement. The resulting cost of carbon abatement associated with the pandemic thus exceeded 7 thousand Euro/Ton.

The implicit cost of carbon abatement during the COVID-19 pandemic Articles