On the Derivation of Second-Best Marginal Abatement Cost Curves

This paper addresses common pitfalls associated with the empirical derivation of greenhouse gas abatement supply curves in settings where emission reductions are incentivized indirectly through payments tied to land management. We focus on two metrics used repeatedly in the literature to represent the marginal social costs of abatement actions. We demonstrate with the use of a theoretical model that these metrics generally fail to reveal underlying social costs, and offer easily implementable and correct alternatives. Our findings suggest that the social costs of greenhouse gas mitigation through forestation in the U.S. have been significantly overestimated in an influential previous study