Sandbag’s Marginal Abatement Cost curve

Hydrogen will play an important role is the decarbonisation of emissions-intensive industries. Using the following interactive MAC curve, stakeholders can calculate when the switch from unabated fossil hydrogen to renewable hydrogen would become profitable in the refining, methanol and ammonia sectors.  Find out more about this topic in our Hydrogen report.

Questions & Answers

How to read a Marginal Abatement Cost curve?

A Marginal Abatement Cost (MAC) curve is an intuitive way to present both the cost and the decarbonisation potential of different abatement measures or technologies. Each technology is ranked by merit order, according to its marginal abatement cost, or the cost associated with the last tonne of CO2 avoided (on the vertical axis). The horizontal axis represents the annual abatement potential until 2030: a technology with a larger base has a larger abatement potential.

The abatement potential is calculated by comparing the emission intensity of the new production process with that of the currently predominant technology (e.g using electrolytric hydrogen instead of SMR-based hydrogen). Abatement costs are obtained by means of an extensive review of the literature as well as expert consultations.

On the curve, each “bar” shows the overall abatement cost and potential of a technology that would start at a given year, in a given region (South or North), and for a given sector (ammonia, refining or methanol). The years indicate investment decision, the first emission reductions being delivered two years later.

What technology and sectors do the tool cover?

The tool shows the abatement potential and cost of three sectors that would use electrolytic hydrogen instead of hydrogen made with steam methane reforming (SMR). These three sectors are Ammonia, Methanol and Refining. We chose to focus on these sectors as they are among the most carbon-intensive ones and because alternative to SMR-based hydrogen are already available.

We are planning to add more sectors and technologies in the coming months.

How is the abatement cost calculated?

The abatement cost, expressed in €/tCO2, is the sum of differences in costs between electrolytic and SMR-based hydrogen over the lifetime of the electrolysers, minus any subsidies or “green premium”, divided by the amount of tonnes of CO2 avoided during that same period. Costs include capital expenditures (CAPEX) and operational expenditures (OPEX).

CAPEX depend on electrolysers’ capacity and efficiency, which improves over the years. The capacity is calculated based on the utilisation rate of the electrolysers and on the production of hydrogen that much be decarbonised each year.

Operational costs are discounted to reflect the reduced value of future payments (the default discount rates are set to 6% for electrolysis and SMR). Opex include thermal and electricity costs, maintenance costs and costs related to compression and storage for electrolysis-based hydrogen.

The final abatement cost also takes into account:

  • A green premium for the Refining sector: it is an extra cost paid for “green” hydrogen made with renewable energy and therefore deducted from the abatement cost.
  • Any injected subsidies.
Why do you differentiate between North and South?

To reflect the disparity of costs between sources of renewable energy and renewable potential across the continent, we created two geographical zones, “Northern Europe” and “Southern Europe”. We then deduced a renewable Levelised Cost Of Electricity for both regions, in 2020 and 2030 as the average of LCOEs from solar PV, onshore and offshore wind, weighted by the assumed respective share of each renewable source in each region. Please refer to our Hydrogen report for more details.

What are the assumptions behind the curve? Where do the data come from?

All assumptions and data we used are described in our Hydrogen report.