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

V. Conclusion

There have been a number of studies for India, which have
applied the output distance function approach to calculate the shadow
prices of the undesirable outputs. They mainly relate to water pollutants
like BOD (biological oxygen demand), COD (chemical oxygen demand),
and SS (suspended solids). These include studies by Murty and Kumar
(2002; 2001); Kumar and Rao (2002). The present study is one of the
very few studies that uses the output distance function technique for the
coal fired thermal plants in India and, perhaps the only one to calculate
the shadow price of CO2 emissions for the power sector in India. The
only other study that uses the output distance technique to calculate the
shadow prices of the pollutants emitted by the power plants in India, is
Kumar (1999) which uses both deterministic and stochastic output
distance function to derive the shadow price of PM10 for the power plants
in India. Apart from the studies relating to India, numerous other studies
have also been carried out worldwide using the output distance
technique.⁶ A number of studies have also been conducted worldwide to
derive the shadow prices of pollutants for the power sector. Appendix
Table A6 displays the results of some of the studies that use the output
distance technique to derive the shadow price(s) of pollutant(s) for the
power sector.

The present study uses the output distance function approach
and its duality with the revenue function to calculate the plant specific
shadow prices of CO2, which is the undesirable output for the coal fired
thermal power plants in India. A distinguishing feature of this framework
is that it provides a measure of productive efficiency for each producer.
The output distance function technique, since it allows shadow prices to
vary across producers, can reveal a pattern of variation by production
techniques, by other plant characteristics like the age of the plant,
volume of pollution. This type of information would be helpful for
policymakers in designing or formulating policies to reduce carbon
dioxide emissions.

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