Measuring Marginal Abatement Costs in the Indian Thermal Power Sector: A By-production Approach

Suggested Citation
Sushama Murty and Resham Nagpal (2021), “Measuring Marginal Abatement Costs in the Indian Thermal Power Sector: A By-production Approach”, Data Envelopment Analysis Journal: Vol. 5: No. 2, pp 413-454.
Publication Date: 17 Aug 2021
© 2021 S. Murty and R. Nagpal
Carbon Regulation,  Environmental Economics,  Environmental Economics: Market-based Policy Instruments,  Economic Theory: Microeconomic Theory
Modelling pollution generating technologies, weak disposability, joint disposability, costly disposability, by-production approach, marginal abatement cost


In this article:
1 Introduction
2 Departure from Standard Neo-classical Production Theory When Modelling Production of Bads
3 The By-production Approach
4 Computing MACs Using the By-production Approach
5 Computing MACs under Weak and Joint-Disposability-Based Approaches Employing the Non-parametric DEA
6 Data
7 Results and Interpretations
8 Conclusions


This paper estimates the marginal abatement costs (MACs) for CO2 emission in the Indian coal-based thermal power sector employing a non-parametric by-production approach. The estimates so obtained are compared with those from weak and joint-disposability-based approaches. In contrast to the other two approaches, by-production approach computes the MAC as the reduction in electricity generation necessitated by a reduction in coal (heat) input when emission generation is reduced by one unit. Under this approach, the estimates of the reduction in heat input per-unit reduction in emission generation lie in a small range around the same computed for the true data-generating process. The MACs varied widely between 58.92 and 102.28 USD/metric-ton of CO2, with a mean value of 85 USD/metric-ton in 2015, indicating a tremendous potential for emission trading or a Pigouvian tax as policy tools for correcting the allocative inefficiencies in this sector.


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