Decomposition of system-level costs in marginal abatement cost formation under carbon neutrality in Japan

• Energy technology configurations and MAC assessed using a technology selection model. • Technology configuration significantly differs depending on the CO2 storage capacity. • Mechanisms of MAC were determined. • Factors that efficiently decrease the cost of reducing CO2 emissions were identified. • Important fields for investment in decarbonization technologies were identified. Effective carbon pricing policies, such as carbon prices and emissions trading systems, require a clear understanding of the marginal abatement cost (MAC)—the cost of reducing one additional ton of CO₂. Traditional approaches using energy system models often provide limited insights into how specific technologies and system constraints influence MAC. Here, we introduce a decomposition-based approach using a technology selection model that not only identifies which technologies determine MAC, but also decomposes the incremental cost into underlying components and clarifies how system-level interactions—such as the availability of CO₂ storage capacity and changes in the generated electricity mix —shape these costs. This method offers a more transparent and interpretable foundation for policy assessment compared to conventional approaches. By elucidating the underlying mechanisms that shape MAC, our approach provides actionable insights for designing more effective targeted investments and carbon pricing schemes. Moreover, by visualizing the determinants of MAC, our method enables policymakers to more easily comprehend complex cost structures, facilitating more informed decision-making. These findings contribute to a broader understanding of the systemic dynamics involved in achieving carbon neutrality and can inform both national strategies and international efforts toward sustainable energy futures.