Cost of CO2 emission mitigation and its decomposition: evidence from coal-fired thermal power sector in India

Abstract

We estimate Carbon Mitigation Cost (CMC), and the factors determining change in CMC using environmental production function. The CMC index is defined as the ratio of maximum production of electricity under unregulated and regulated production technology. Change in CMC index is decomposed into technical change, scale change and change in the level of CO 2 emissions. The production function is estimated for 45 coal-fired thermal power plants over the period of 2008 -2012 using Data Envelopment Analysis. Decomposition of CMC change reveals that impacts of changes in scale of operation and CO 2 emissions were more than the reduced costs realized due to technical changes. We find that the sample plants in Indian coal-fired thermal power sector had to sacrifice about 3.5 percent of electricity production amounting to 2005US$ 1702 million of revenue loss over the 5 years due to regulation of CO 2 emissions.