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Environmental efficiency measurement with heterogeneous input quality: A nonparametric analysis of U.S. power plants

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  • Hampf, Benjamin
  • Rødseth, Kenneth Løvold

Abstract

While there is an abundant theoretical and empirical literature on environmental efficiency measurement, the impacts of heterogeneous input quality on environmental efficiency remain unexplored. Failing to control for this heterogeneity may lead to performance measurement errors, i.e., fuel quality differences are confused with technical inefficiency. In this paper, we account for this problem by proposing a Materials Balance production model that accommodates heterogeneous material flow coefficients and thereby allows for heterogeneity in input quality. Based on this model, a decomposition of environmental efficiency is proposed which disentangles the contributions of fuel quality differences and technical inefficiency. We implement our approach using nonparametric methods to evaluate and decompose environmental efficiencies using panel data on U.S. coal-fired power plants. Our results show that most of the potential to improve environmental efficiency is due to fuel quality differences and that environmental regulations have had an adverse impact on fuel quality.

Suggested Citation

  • Hampf, Benjamin & Rødseth, Kenneth Løvold, 2019. "Environmental efficiency measurement with heterogeneous input quality: A nonparametric analysis of U.S. power plants," Energy Economics, Elsevier, vol. 81(C), pages 610-625.
    • Handle: RePEc:eee:eneeco:v:81:y:2019:i:c:p:610-625
    DOI: 10.1016/j.eneco.2019.04.031
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    6. Kai Hu & Dandan Li & Daqian Shi & Wenli Xu, 2023. "Environmental regulation and energy efficiency: evidence from daily penalty policy in China," Journal of Regulatory Economics, Springer, vol. 63(1), pages 1-29, April.
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    8. Andreas Eder, 2021. "Environmental efficiency measurement when producers control pollutants under heterogeneous conditions: a generalization of the materials balance approach," Working Papers 752021, University of Natural Resources and Life Sciences, Vienna, Department of Economics and Social Sciences, Institute for Sustainable Economic Development.
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    More about this item

    Keywords

    Input quality; Coal; Data Envelopment Analysis; Materials balance condition;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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