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



CO2 are at constant 1990-91 prices. There is a wide variation in the
mean value of the output distance function and the mean value of the
marginal cost of abating CO
2 emissions across plants as is shown in
Table A2 in the appendix. The mean value of the distance function
varies, in case of Model-1, between 0.896814 (for Titagarh TPS) and
0.998510 (for Mejia TPS) and between 0.937319 (for Bokaro ‘B’ TPS)
and 0.997814 (for Mejia TPS) in case of Model-2. Thus there exists
considerable scope for increasing electricity output if these plants were
to operate efficiently. Similarly, there is a wide variation in the mean
value of the output distance function and the mean value of the marginal
costs of abating CO
2 emission across the years as is evident from Table
A3 in the appendix.

Tables A4 and A5 in the appendix display plant wise shadow
prices or marginal cost of abatement for CO
2 for the years between
1990-91 and 1999-2000. As is noted above, these shadow prices are
expressed at constant 1990-91 prices. Table A5 illustrates the results of
Model-2 where a dummy variable was used to distinguish the dirty plants
from the cleaner ones, while the results for Model-1 are represented in
the Table A4. We see there exists wide variation in the marginal
abatement cost across plants in both the models. Even for a particular
plant there are variations in the shadow prices across the years. The
wide variation in the marginal abatement costs or the shadow prices of
CO
2 can be explained by variation in the ratio of CO2 emissions to
electricity generation, the different vintages of capital used by the
different plants for generation of power and the different measures
adopted for abating or controlling pollution.

We consider the ratio of total CO2 emissions to electricity
generation to be our index of efficiency (or inefficiency). The higher the
ratio, the less efficient the plant is and
vice versa. In other words, an
efficient plant is associated with a lower value of this ratio because it
would emit less CO
2 per unit of output generated. On the basis of the
index of efficiency, the study finds, for the sample of thermal plants under
consideration, higher efficiency is associated with a higher shadow price
of CO
2. This implies that for a cleaner and efficient plant the marginal
cost of abating CO
2 emissions is high while for a dirty and inefficient
plant, it is low. The estimated relation between the shadow prices and
the efficiency index is given below.

22



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