Directional shadow price estimation of CO2, SO2 and NOx in the United States coal power industry 1990¬タモ2010

a r t i c l e i n f o JEL classification: C14 D24 O13 O44 Q53 Q56 Keywords: Shadow price Emissions trading Directional distance function Marginal abatement cost Coal power plant Shadow prices, also termed marginal abatement costs, provide valuable guidelines to support environmental regulatory policies for CO 2 , SO 2 and NO x , the key contributors to climate change. This paper complements the existing models and describes a directional marginal productivity (DMP) approach to estimate directional shadow prices (DSPs) which present substitutability among three emissions and are jointly estimated. We apply the method to a case study of CO 2 , SO 2 and NO x 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 separately may lead to an overestimation of the marginal productivity and an underestimation of the shadow prices. The challenges posed by climate change require large reductions of global carbon dioxide (CO 2) emissions, of which electricity and heat generation account for over 40%. Currently, a majority of electricity is still generated through burning coal, with the share increasing from 65% in 1990 to 72% in 2012 in the world (IEA, 2014). In addition to CO 2 emissions, coal-fired electricity generation also produces undesirable air pollutants such as sulfur oxide (SO 2) and nitrogen oxide (NO x). In the United States (US), power plants generated around 77% of acid gases (e.g., hydrogen sulfide and CO 2), 60% of SO 2 and 13% of NO x in 2010 (EPA, 2012a). Coal-fired electricity generation accounted for 44.8% of total electricity generation, which contributed to 78.4% of CO 2 , 91.9% of SO 2 , and 74.0% of NO x among all power sectors (EIA, 2011). The federal Environmental Protection Agency (EPA) regulates pollution under the federal Clean Air Act (CAA) Amendments. In 2011, EPA released new environmental regulations which asked coal power plants to reduce emissions of 84 toxic chemical levels within four years (EPA, 2011). Around 1400 coal and oil-fired electric generating units (EGUs) at 600 power plants in US were covered under the new standards. Recently, three major regulatory provisions — Mercury Air Toxics Standards (MATS), Cross-state Air Pollution Rules (CSAPR), and Clean Power Plan (CPP), were implemented to US …