Estimation of marginal abatement costs for undesirable outputs in India's power generation sector: An output distance function approach.

Estimation of Marginal Abatement

Costs for Undesirable Outputs in
India’s Power Generation Sector:
An Output Distance Function

Approach

M Ш     ∙  *            Л *

Manish Gupta

Abstract

Many production activities generate undesirable byproducts in
conjunction with the desirable outputs they produce. The present study
uses an output distance function approach and its duality with the
revenue function to estimate the marginal abatement cost of CO2
emissions from a sample of thermal plants in India. Two sets of
exercises have been undertaken. The marginal abatement cost is first
estimated without considering the distinction between the clean and the
dirty plants (model-1) and then by differentiating between the two
(model-2). The shadow prices of CO2 for the coal fired thermal plants in
India for the period 1991-92 to 1999-2000 was found to be Rs. 3,380.59
per ton of CO2 as per model-1 and Rs. 2401.99 per ton of CO2 as per
model-2. The wide variation noticed in the marginal abatement costs
across plants is explained by the ratio of CO2 emissions to electricity
generation, the different vintages of capital used by different plants in the
generation of electricity and provisions for abatement of pollution. The
relationship between firm specific shadow prices of CO2 and the index of
efficiency (ratio of CO2 emission and electricity generation) points to the
fact that the marginal cost of abating CO2 emissions increases with the
efficiency of the thermal plant.

Economist, National Institute of Public Finance and Policy, 18/2 Satsang Vihar
Marg, Special Institutional Area (Near JNU), New Delhi 110 067. Email:
[email protected].

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