Abatement Cost Details

As people's desire to preserve the environment becomes stronger each day, businesses worldwide are also pursuing more eco-friendly production activities. This means that if a company is continuously damaging the environment—e.g., releasing air or water pollutions—they need to put more effort into reducing such damage. We know this additional operating cost to overcome environmental damage as abatement cost. To put it simply, abatement cost is the penalty exacted upon companies harming their natural surroundings. A company can avoid abatement costs by using a greener production method.

In the real world, abatement cost is closely related to greenhouse gases. If a company chooses to ignore the undermining effects of these emissions to the environment, the firm may receive backlash from people, or worse, it may be subject to boycott. This is why striving to decrease harmful production side effects is vital for modern corporations, especially in developed countries where people have more environmental awareness.

However, as a business, companies will still try to find the most cost-effective measure that has the best possible result with a low cost. This is where marginal abatement cost comes in. Marginal abatement cost (MAC) indicates the cost of cutting down one more unit of pollution. A marginal abatement cost curve (MACC) can show the average increase or decrease in cost as more pollution is lessened.

Real World Example of Abatement Cost

One of the big corporations aiming to tackle climate change is the consumer goods company Unilever. Unilever is investing €120 million in its "Clean Technology Fund." The company claims to have a goal of "relying on 100% renewable energy in its manufacturing by 2030." By committing to this goal, the company believes that it will lower operation costs while also attracting new investors. As of the end of 2019, Unilever also declared to have cut down CO2 emissions by more than 65% per ton compared to 2008. This enables the company to save around €733 million since 2008 in production costs.

Reducing pollution may not only benefit nature but humans as well. One example comes from the annual Toxics Release Inventory (TRI) National Analysis released by the Environmental Protection Agency (EPA), a U.S. federal agency established to protect the environment's health. In its analysis, the EPA calculated that industrial toxic chemicals released by U.S. factories fell by 56% from 2005 to 2015. These chemicals include hazardous materials for humans, such as sulfuric acid, mercury, and hydrochloric acid.

Not just big corporations, but governments, as well as regular folks, also have the responsibility to preserve the environment. For instance, Indonesia, a South-East Asian country, commits to decreasing greenhouse emissions to a minimum of 26% by 2020. For that purpose, using the marginal abatement cost principle of low-cost high-yield mitigation action, the government introduces low methane rice varieties to farmers. They also encourage farmers to use manure or compost and non-tillage plus direct-seeded techniques to improve their land.