Using Marginal Abatement Cost curves

How do you prioritise sustainability projects and make sure they meet your strategic priorities? The CitySwitch Marginal Abatement Cost (MAC) curve is a simple Microsoft Excel-based tool which compares potential energy efficiency and carbon reductions projects and ranks them based on their economic feasibility and potential impact.  

Download the CitySwitch MAC Curve Tool. Contact CitySwitch if you need assistance.

Marginal abatement means the cost to reduce or offset one unit of pollution, in this case one tonne of greenhouse gas (GHG) emissions. MAC curves generally show the cost, in $ per tonne CO2-e, associated with the emissions reductions achievable by different energy efficiency projects at a given point in time.

Investments targeted at reducing operational energy consumption, and the associated GHG emissions, can be an effective way of reducing operational costs and making businesses less vulnerable to future energy price increases.  However, it is not always easy for small and medium enterprises (SMEs) to decide which energy efficiency measures to implement, and in which order. Some measures may be obvious, quick and inexpensive to implement but do not deliver considerable energy or carbon savings and others may require significant investment but deliver excellent longer term energy savings. Additionally some may deliver modest savings but are aligned strategically with competencies that a company wants to develop or demonstrate to the market.  In your energy action plan you may decide to have a mix of all of these, but you need to be systematic and informed in that decision-making so that you spend your efforts in the right place and your decisions are defensible.

The MAC curve was developed in 2007, and has been used to describe and compare potential projects at multiple scales, from entire economies to regional areas to individual businesses and work sites. 

How to read a Marginal Abatement Cost curve

The height of the vertical or y-axis of the graph represents the cost of each of the potential energy efficiency projects, while the width of the horizontal or x-axis represents the total GHG abatement potential for each option.  The fattest block delivers the most abatement.  The graph is ordered left to right from lowest  to highest cost opportunities (see the example graph below).

The principal idea of a MAC curve is that options that appear below the horizontal axis, i.e. the business-as-usual (BAU) baseline, offer the potential for financial savings even after the upfront costs of implementing them have been factored in. These typically include low-cost activities such as behaviour change initiatives and delamping (where excess lights are removed). After benchmarking your original energy consumption, these are the sorts of initiatives that should be implemented. Options that appear above the horizontal axis are expected to come at a net-cost per annum, such as installing energy efficient lighting or on-site renewable energy, or purchasing GreenPower. However, these are also the options that often can deliver the most carbon reductions. How much money an organisation can save, or how much it will have to spend, is calculated by multiplying the $ per tonne of CO2-e avoided with the total number of tonnes of CO2-e avoided. For example, if an option to reduce emissions costs $15 per tonne of CO2-e avoided, and the reduction potential is 50 tonnes of CO2-e, then the total cost of implementing this measure is $15 x 50  = $750.

How to work out your cost per tonne for each project

Collect your set of basic inputs that help define the project technology and cost parameters, such as potential energy savings and implementation costs. The tool can accommodate up to 20 potential initiatives, and allows users to enter and adjust project parameters and immediately view how these changes impact key project business case metrics. 

The following inputs are required:

  • A brief description of the potential energy efficiency project e.g. lighting upgrade, behaviour change program
  • Location of project (state)
  • Costs (capital, operational and maintenance) associated with the proposed project and decommissioning any technology the project replaces
  • Weighted average cost of capital (or the discount rate) if relevant 
  • Expected project life span and the technology to be replaced (where applicable)
  • Current electricity and natural gas prices (excluding GST)
  • Expected electricity or natural gas savings in % of BAU baseline or MWh

An example is as follows:

Energy efficiency project

Capital cost

Annual operational & maintenance costs

Project life

Current cost of electricity

Expected kWh savings per annum

Lighting upgrade

$10,000

$150

15 years

22c/kWh

10 MWh

How to calculate

Number of units x purchase price

(Number of estimated hours spent servicing new lights x hourly rate + cost of number of units replaced) minus (Number of hours spent servicing current lights x hourly rate + cost of number of units replaced)

Rated life of bulbs / hours of use per year

Cost per kWh from energy bills

No of units x saving compared to previous x hours of usage per year

Source

Electrician or lighting consultant

Electrician, lighting consultant or building ops manager

Electrician or lighting consultant

Located on the back of your electricity bill

Electrician or lighting consultant


The resulting information from the MAC curve will reveal the expected financial payback (in years), the costs of abatement ($ per tonne of CO2-e) and annual average tonnes of GHG abated. Three difference scenarios for future energy price increases (low, medium and high) are utilised to give a range of predicted financial savings. CitySwitch program managers can help CitySwitch signatories and other businesses undertake an initial energy audit using the CitySwitch Audit Toolkit to estimate an office baseline, can provide some initial thoughts as to what energy efficiency projects may be applicable to a particular organisation or office space, and assist with the calculations. 

Things to be aware of when using a MAC curve tool

It is important that all users of the CitySwitch MAC curve tool are aware of some of the challenges in interpreting outputs, as with most statistics, they may not always tell the whole story and are only as accurate as the data entered into them. The tool is a device for creating a like-for-like comparison around a limited range of considerations, therefore a MAC curve should not be the only tool used when making energy efficiency investment decisions. Additional issues to consider include:

  • A MAC curve's focus is on the direct costs associated with energy efficiency and emission reductions projects, including any initial investment cost and operation and maintenance. Additional costs such as the potential disruption to normal business operations while a project is being installed are generally excluded. 
  • The quality of data on the cost and potential benefit of a project is critical. If there are uncertainties around data inputs, then the outputs should be treated with caution. It is also important to remember that energy efficiency technology is constantly evolving, which means that predicted costs and benefits should be revisited occasionally to make sure that the business case for potential initiatives has not changed. This means that MAC curves need to be dynamic and updated with the latest emission factors, price of electricity and gas, potential savings from new products, other financial incentives and technology prices.
  • For strategic or operational reasons, it may be preferable to implement the more expensive longer term projects before the whole range of less expensive, quick-win measures have been implemented.
  • For political reasons it may be advisable to select a range of projects that give a mix of quick wins, long-term strategic change and engage people in the solutions. It is important to consider the human factors in developing any long-term plan. 
  • The interactions between different abatement options should also be considered. If a given abatement action is implemented, then the baseline and underlying assumptions for the remaining abatement options may change. For example, delamping or installing lighting controls would reduce the abatement potential of LEDs.

The bottom line

MAC curves are a great tool to help CitySwitch signatories and other businesses decide what they should prioritise when beginning to formalise an Energy Action Plan and undertake energy efficiency initiatives. 

Download the CitySwitch MAC Curve Tool. Contact CitySwitch if you need assistance.

Case Study – MAC curve in practice

CitySwitch National Signatory of the Year 2012 and 2013, the Royal Automobile Club of Western Australia, has successfully implemented a range of bold and innovative projects including the delivery of a comprehensive Resource Efficiency Action Plan  prioritised against their interactive Marginal Abatement Cost curve. Read the case study >



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