Carbon dioxide emission standards for U.S. power plants: An efficiency analysis perspective

Abstract

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Optimal profits under environmental regulation: the benefits from emission intensity averaging

“…These standards are calculated based on the output-weighted historical emission rates of different fossil fuels, with the weights adjusted for future increase in natural gas, renewable, and nuclear power capacity, as well as demand side energy reductions. The average EPA standard is 0.5 tons of CO 2 per MWh produced, which according to our previous results implies that all bituminous generating units in our sample would shut down (see Kotchen and Mansur (2014) and Hampf and Rødseth (2014) for further evaluations of the technical feasibility of this standard for coalfired generating units). Hence, we do consider the final EPA standard to be an interesting case for our paper.…”

“…14 See Färe et al (2013a) for a discussion on the reduction of the number of observations due to missing data from U.S. power plants. 15 See Hampf and Rødseth (2014) for more details on the data. The solid line in the upper panel of figure 1 indicates the optimal profits for different performance standards if they are fixed for each generating unit, hence if the optimal profit for each generator cannot be associated with an emission intensity larger than the imposed standards.…”

“…The presented estimations of the technology sets are non-convex versions of the estimators presented in Färe et al (1989) and Hampf and Rødseth (2014). However, when estimated from empirical observations these technology estimates do not necessarily satisfy axiom 1 (inactivity).…”

“…3 This specification of the electricity generating process follows previous studies on the efficiency of U.S. power plants, see e.g. Mekaroonreung and Johnson (2012) and Hampf and Rødseth (2014). Defining x P ∈ R + as the polluting input, x N P ∈ R + as the non-polluting input and y ∈ R + as the good output, the conventional technology which does not account for the production of emissions comprises all technically feasible combinations of inputs and good outputs and reads as:…”

“…4 Hence, in our example of the electricity generation, s y = 0 because the output electricity does not contain any materials. For a more detailed comparison of the JP and the MB model, as well as an empirical application, see Hampf and Rødseth (2014).…”