Directional Shadow Price Estimation of CO2, SO2 and NOx in the United States Coal Power Industry 1990–2010

36 Pages Posted: 15 Apr 2013

See all articles by Chia-Yen Lee

Chia-Yen Lee

National Cheng Kung University

Date Written: April 14, 2013

Abstract

Shadow prices, also termed marginal abatement costs, provide valuable guidelines to support environmental regulatory policies for CO2, SO2 and NOx, the key contributors to climate change. However, a typical method estimates shadow price of each single by-product (pollutant) individually even the multiple pollutants may be generated simultaneously in the production process. This paper describes a multi-product marginal product approach to estimate directional shadow prices (DSPs). We apply the method to a case study of CO2, SO2 and NOx produced by coal power plants operating between 1990 and 2010 in the United States. We find that DSP shows 1.1 times the maximal shadow prices estimated in the current literature. We conclude that estimating the shadow prices of each by-product at a time without considering multiple by-products generation can lead to underestimating the shadow prices.

Keywords: shadow price, emissions trading, directional distance function, marginal abatement cost, coal power plant

Suggested Citation

Lee, Chia-Yen, Directional Shadow Price Estimation of CO2, SO2 and NOx in the United States Coal Power Industry 1990–2010 (April 14, 2013). Available at SSRN: https://ssrn.com/abstract=2250682 or http://dx.doi.org/10.2139/ssrn.2250682

Chia-Yen Lee (Contact Author)

National Cheng Kung University ( email )

No.1, University Road
Tainan
Taiwan

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