At What Cost do We Reduce Pollution? Shadow Prices of SO₂, Emissions

Abstract

The U. S. EPA's infant market for SO2 emissions has the potential for improving the cost effectiveness of reducing acid rain pollutants. If the market works as planned, over time one should see the cost of reducing additional amounts of sulfur dioxide converge across plants. The results of the study described here demonstrate that before the market opened marginal abatement costs varied wildly across plants. This work provides estimates of the shadow price of SO2 abatement using the output distance function approach for Illinois, Minnesota and Wisconsin coal-burning electric plants. The results demonstrate that the coal-burning electric plants with the highest emissions rates are also the plants with the lowest marginal abatement costs, a fact that may explain lower-than-expected prices in the new market for allowances. The data include information about plants with installed scrubber capital allowing for an investigation of the effect of scrubber capital on marginal abatement costs.

Cost estimates for multiple pollutants: A maximum entropy approach

“…The OLS estimates show that SO 2 emissions cost, on average, $89/ton to abate, the GME model reports $82/ton and the RGME model gives an average of $289/ton. This RGME result corresponds with other research using the distance function framework (see Coggins and Swinton, 1996;Swinton, 1998;Swinton, 2002) and is within the trading bounds established over the past decade in the EPA's Acid Rain Program allowance market. The OLS and GME estimates are on the lower reaches of the trading range while the RGME results are in the upper reaches.…”

“…Färe et al (1993) show that abatement costs are readily recoverable through the distance function's dual relationship with the revenue function. This technique has been used in various contexts in which undesirable outputs are present including: pulp and paper (Färe et al, 1993;Hailu and Veeman, 2000), electricity (Coggins and Swinton, 1996;Swinton, 1998Swinton, , 2002Kwon and Yun, 1999) and agriculture (Rezek and Perrin, 2004).…”

“…We model electric generation as a multi-input, multi-output production process using an output distance function in which the effluents are specified as detrimental by-products of production. The distance function framework has been used to model joint electricity and SO 2 production in a panel of Wisconsin plants (Coggins and Swinton, 1996), Wisconsin, Minnesota and Illinois plants (Swinton, 1998), and Florida plants (Swinton, 2002). It has also been used to model electricity production in the presence of multiple pollutants, including SO 2 , NO X , CO 2 and particulates, in a sample of Korean power plants (Kwon and Yun, 1999).…”

Regional differences in China's CO2 abatement cost

“…Coggins and Swinton (1996) and Swinton's (1998;2002;2004) respectively applied the method in studies on the abatement cost of SO 2 emissions. Similarly researches include Kwon and Yun (1999), Ray and Mukherjee (2007), and Lin and Zhang (2011), etc.…”

Measuring environmental efficiency of industry: a case study of thermal power generation in India

“…There are many studies estimating the technical efficiency of polluting firms using the output distance function. (Coggins and Swinton,1996;Hetemaki, 1996;Swinton, 1998;Boyd and Mclelland, 1999;Murty and Kumar, 2002).…”