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

Model-1 Dependent Variable: ln (shadow price of CO2)

Note: Year dummies have been used in estimating both the regressions but are
not reported while presenting the results.

While carrying out the regression analysis we have considered
the natural logarithm (ln) of the shadow prices as the dependent variable
and the natural logarithm of the efficiency index i.e., the ratio of CO2
emissions and electricity generation as the independent variable. Year
dummies have been incorporated while regressing the logarithm of
shadow prices on the logarithm of the index of efficiency, but have not
been reported in the results presented above. From the above results,
one can infer that the shadow price of CO2 or the marginal cost of
abating CO2 emissions increases with the increase in efficiency of the
power plants. In other words it becomes increasingly difficult or
expensive for a plant, which has invested in pollution abating technology
or equipment and is emitting less of CO2 per unit of output to reduce an
additional unit of the pollutant vis-à-vis plants that emit more CO2 per unit
of electricity generation. Thus, for a given level of output the less one
pollutes per unit of output, the higher will be the cost of reducing an
additional unit of the pollutant and vice versa.

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