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

Chia Yen Lee; Peng Zhou

doi:10.1016/j.eneco.2015.08.010

Directional shadow price estimation of CO₂, SO₂ and NO_x in the United States coal power industry 1990-2010

Chia Yen Lee, Peng Zhou

Institute of Manufacturing Information and Systems

Research output: Contribution to journal › Article › peer-review

48 Citations (Scopus)

Abstract

Shadow prices, also termed marginal abatement costs, provide valuable guidelines to support environmental regulatory policies for CO₂, SO₂ 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 CO₂, SO₂ 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.

Original language	English
Pages (from-to)	493-502
Number of pages	10
Journal	Energy Economics
Volume	51
DOIs	https://doi.org/10.1016/j.eneco.2015.08.010
Publication status	Published - 2015 Sep 1

All Science Journal Classification (ASJC) codes

Economics and Econometrics
Energy(all)

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title = "Directional shadow price estimation of CO2, SO2 and NOx in the United States coal power industry 1990-2010",

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. 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 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 separately may lead to an overestimation of the marginal productivity and an underestimation of the shadow prices.",

author = "Lee, {Chia Yen} and Peng Zhou",

note = "Funding Information: We are grateful to the financial support provided by the Ministry of Science and Technology of Taiwan ( MOST103-2221-E-006-122-MY3 ), the National Natural Science Foundation of China (nos. 71273005 and 71573119 ) and the Jiangsu Natural Science Foundation for Distinguished Young Scholars (no. BK20140038 ). ",

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N1 - Funding Information: We are grateful to the financial support provided by the Ministry of Science and Technology of Taiwan ( MOST103-2221-E-006-122-MY3 ), the National Natural Science Foundation of China (nos. 71273005 and 71573119 ) and the Jiangsu Natural Science Foundation for Distinguished Young Scholars (no. BK20140038 ).

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Y1 - 2015/9/1

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AB - 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. 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 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 separately may lead to an overestimation of the marginal productivity and an underestimation of the shadow prices.

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