Measuring Marginal Abatement Costs in the Indian Thermal Power Sector: A By-production Approach
In this article:
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
7 Results and Interpretations
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.