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Measuring Environmental Efficiency of Industry: A Case Study of Thermal Power Generation in India

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  • M N, Murty
  • Kumar, Surender
  • Dhavala, Kishore

Abstract

Technical and environmental efficiency of some coal-fired thermal power plants in India is estimated using a methodology that accounts for firm’s efforts to increase the production of good output and reduce pollution with the given resources and technology. The methodology used is directional output distance function. Estimates of firm-specific shadow prices of pollutants (bad outputs), and elasticity of substitution between good and bad outputs are also obtained. The technical and environmental inefficiency of a representative firm is estimated as 0.10 implying that the thermal power generating industry in Andhra Pradesh state of India could increase production of electricity by 10 per cent while decreasing generation of pollution by 10 percent. This result shows that there are incentives or win-win opportunities for the firms to voluntarily comply with the environmental regulation. It is found that there is a significant variation in marginal cost of pollution abatement or shadow prices of bad outputs across the firms and an increasing marginal cost of pollution abatement with respect to pollution reduction by the firms. The variation in marginal cost of pollution abatement and compliance to regulation across firms could be reduced by having economic instruments like emission tax.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1693.

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Date of creation: Apr 2006
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Handle: RePEc:pra:mprapa:1693

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Keywords: environmental and technical efficiency; shadow prices of bad outputs; air pollution;

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  5. John R. Swinton, 1998. "At What Cost do We Reduce Pollution? Shadow Prices of SO2 Emissions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 63-83.
  6. Fare, Rolf & Grosskopf, Shawna & Noh, Dong-Woon & Weber, William, 2005. "Characteristics of a polluting technology: theory and practice," Journal of Econometrics, Elsevier, vol. 126(2), pages 469-492, June.
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  11. Murty, M.N. & Kumar, Surender, 2002. "Measuring the cost of environmentally sustainable industrial development in India: a distance function approach," Environment and Development Economics, Cambridge University Press, vol. 7(03), pages 467-486, July.
  12. Atakelty Hailu & Terrence S. Veeman, 2001. "Non-parametric Productivity Analysis with Undesirable Outputs: An Application to the Canadian Pulp and Paper Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 605-616.
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Cited by:
  1. Mondelaers, Koen & Kuosmanen, Timo & Van Passel, Steven & Buysse, Jeroen & Lauwers, Ludwig H. & Van Huylenbroeck, Guido, 2011. "Sustainable Efficiency Of Firms When New Sustainability Targets Are Introduced," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114633, European Association of Agricultural Economists.
  2. Bellenger, Moriah J. & Herlihy, Alan T., 2010. "Performance-based environmental index weights: Are all metrics created equal?," Ecological Economics, Elsevier, vol. 69(5), pages 1043-1050, March.
  3. Kaneko, Shinji & Fujii, Hidemichi & Sawazu, Naoya & Fujikura, Ryo, 2010. "Financial allocation strategy for the regional pollution abatement cost of reducing sulfur dioxide emissions in the thermal power sector in China," Energy Policy, Elsevier, vol. 38(5), pages 2131-2141, May.
  4. Bonilla, Jorge & Coria, Jessica & Sterner, Thomas, 2012. "Synergies and Trade-offs between Climate and Local Air Pollution: Policies in Sweden," Working Papers in Economics 529, University of Gothenburg, Department of Economics.
  5. Fleishman, Rachel & Alexander, Rob & Bretschneider, Stuart & Popp, David, 2009. "Does regulation stimulate productivity? The effect of air quality policies on the efficiency of US power plants," Energy Policy, Elsevier, vol. 37(11), pages 4574-4582, November.
  6. Mani, Muthukumara & Markandya, Anil & Sagar, Aarsi & Sahin, Sebnem, 2012. "India’s economic growth and environmental sustainability : what are the tradeoffs ?," Policy Research Working Paper Series 6208, The World Bank.
  7. Wang, Q.W. & Zhou, P. & Shen, N. & Wang, S.S., 2013. "Measuring carbon dioxide emission performance in Chinese provinces: A parametric approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 21(C), pages 324-330.
  8. Hervé Leleu, 2013. "Duality of Shephard’s weakly disposable technology under a directional output distance function," Working Papers 2013-ECO-03, IESEG School of Management.
  9. Wei, Chu & Löschel, Andreas & Liu, Bing, 2013. "An empirical analysis of the CO2 shadow price in Chinese thermal power enterprises," Energy Economics, Elsevier, vol. 40(C), pages 22-31.
  10. M N, Murty & Dhavala, Kishore Kumar & Ghosh, Meenakshi & Singh, Rashmi, 2006. "Social Cost-Benefit Analysis of Delhi Metro," MPRA Paper 1658, University Library of Munich, Germany.

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