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Joint environmental and cost efficiency analysis of electricity generation

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  • Welch, Eric
  • Barnum, Darold
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    Abstract

    Fossil-fuel based electricity generation produces the largest proportion of human-related carbon pollution in the United States. Hence, fuel choices by steam plants are key determinants of the industry's impact on national and global greenhouse gas emissions, and key foci for climate change policy. Yet, little research has been done to examine the economic and environmental tradeoffs among the different types of fuels that are used by these plants. This paper applies a Data Envelopment Analysis procedure that incorporates the materials balance principle to estimate the allocations of coal, gas and oil inputs that minimize carbon emissions and costs. Using EIA 906 and FERC 423 data, the paper estimates cost/carbon tradeoffs facing two sets of plants: those that use coal and gas inputs, and those that use coal, gas and oil inputs. Findings for our three-input sample show that there would be a 79% increase in cost for moving from the cost-efficient point to the carbon efficient point, while there would be a 38% increase in carbon for moving from the carbon efficient point to the cost-efficient point. These conclusions indicate that, in general, the gap between efficient cost and efficient environmental production is wide, and would require substantial policy intervention, technological change or market adjustment before it could be narrowed. However, our examination of individual plants shows that what is true in general is often not true for specific plants. Some plants that are currently less efficient than those on the production frontier could produce the same amount of electricity with less carbon output and less fuel input. Additionally, many plants on the production frontier could improve both cost and carbon efficiency by changing their mixture of fossil-fuel inputs.

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    Bibliographic Info

    Article provided by Elsevier in its journal Ecological Economics.

    Volume (Year): 68 (2009)
    Issue (Month): 8-9 (June)
    Pages: 2336-2343

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    Handle: RePEc:eee:ecolec:v:68:y:2009:i:8-9:p:2336-2343

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    Web page: http://www.elsevier.com/locate/ecolecon

    Related research

    Keywords: Electricity generation Cost and environmental efficiency Data envelopment analysis Material balance principle DEA Carbon Greenhouse gas;

    References

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    Cited by:
    1. Hoang, Viet-Ngu & Rao, D.S. Prasada, 2010. "Measuring and decomposing sustainable efficiency in agricultural production: A cumulative exergy balance approach," Ecological Economics, Elsevier, vol. 69(9), pages 1765-1776, July.
    2. Bi, Gong-Bing & Song, Wen & Zhou, P. & Liang, Liang, 2014. "Does environmental regulation affect energy efficiency in China's thermal power generation? Empirical evidence from a slacks-based DEA model," Energy Policy, Elsevier, vol. 66(C), pages 537-546.
    3. Zhou, P. & Ang, B.W. & Wang, H., 2012. "Energy and CO2 emission performance in electricity generation: A non-radial directional distance function approach," European Journal of Operational Research, Elsevier, vol. 221(3), pages 625-635.
    4. Wamisho, Kassu, 2012. "The Shadow Price of GHG Reduction in Corn Ethanol Plants," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126862, International Association of Agricultural Economists.
    5. Wamisho, Kassu, 2012. "The Shadow Price of GHG Reduction in Corn Ethanol Plants," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124719, Agricultural and Applied Economics Association.
    6. Daniel Matisoff, 2012. "Privatizing Climate Change Policy: Is there a Public Benefit?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 53(3), pages 409-433, November.
    7. Arabi, Behrouz & Munisamy, Susila & Emrouznejad, Ali & Shadman, Foroogh, 2014. "Power industry restructuring and eco-efficiency changes: A new slacks-based model in Malmquist–Luenberger Index measurement," Energy Policy, Elsevier, vol. 68(C), pages 132-145.

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