CO2 emission regulation and generation allocation with heterogeneous coal-fired generators

Using a generator-level framework, we analyze the impacts of different regulation levels of CO2 emissions on total emissions and generation costs in the China Southern Power Grid Corporation. We employ a structural approach to estimating the generator-level production functions that incorporate heterogeneous returns to scale and unobserved productivity, using a novel generator-level dataset. We find substantial heterogeneity in generation efficiency across generators, and large generators are the most efficient. Counterfactual analyses show that regulating emissions and allocating generation at a more aggregate level (province or region) can reduce total emissions and generation costs by shifting generation toward more efficient generators and plants. The generator-level framework allows for more efficient allocation than the plant-level framework.