8.3 The cost of reducing emissions


A look at the marginal costs of reducing emissions over time helps illustrate how the challenge of deep reductions becomes more difficult—and thus costly—over time (Figure 8.7). The curve shows how costs rise more quickly for the latter set of emission reductions, reflecting the complexities of deep reductions, the uncertainties respecting some technologies, including for carbon capture and negative emissions, as well as direct-air capture. Marginal costs once net-zero is attained reach $1,100 for the last tonne of CO2e eliminated. While this cost may seem high, it must be put in perspective.

Figure 8.7 – Marginal costs of reductions, NZ50 scenario compared with REF #

First, for NZ50, which imposes the current federal aspiration of 40% reduction by 2030 (compared with 2005 levels) and neutral emissions by 2050, the marginal cost remains under $210/tCO2e for achieving the -40% target. While marginal costs then go up in order to move beyond this reduction, the growth rate of this cost is not faster at first: at around -80% of 2005 emissions, the last tonne eliminated is still worth under $500. 

Second, it is worth comparing these results with earlier modelling efforts carried out for the Canadian Energy Outlook 2018. For the most stringent reduction scenario at the time (80P), the target was a reduction of 80% of energy-related emissions compared with 2005 levels by 2050 (around 65% reduction of total emissions). The marginal cost for the last tonne eliminated was then slightly above $1,000/tCO2e, significantly higher than numbers obtained this time. While a precise comparison is not possible given that the current model includes a more comprehensive coverage of emissions (as explained in Chapter 1), and the evolution of the reference scenario is also different, the order of magnitude is unmistakable. Technological developments since the previous Outlook, which help not only with providing emission reduction solutions, but also with reducing uncertainties about technological paths and their costs, have in less than three years resulted in a very significant marginal cost reduction. This is while the 80% reduction is achieved earlier than 2050 for NZ50 as compared to 80P. 

The above helps illustrate that marginal costs are a rapidly moving target: as significant action is taken to reduce emissions, innovation leads to a decrease in the cost of further reductions. This is achieved as new technologies and applications are put in place. As a result, marginal costs on the longer term are then reduced; but more importantly, the higher levels estimated for the last tonne reduced becomes less relevant since it affects a smaller proportion of reductions. In Chapter 14, we return to the issue of the ost of transitioning to a net-zero economy to assess the overall costs and benefits of the transformations required before 2050.