Measuring technical inefficiency and CO₂ shadow price of Korean fossil-fuel generation companies using deterministic and stochastic approaches

Abstract

<jats:p> This paper measures the technical inefficiency and the shadow price of Korean fossil-fuel generation companies (GENCOs) between 2001 and 2016 at the firm-level. To obtain robust empirical results, this study employs both commonly used deterministic and stochastic estimation methods. The empirical results are as follows: the inefficiency estimates are approximately 0.09 (deterministic) and 0.08 (stochastic); the estimates of CO<jats:sub>2</jats:sub> shadow price, in KRW/tCO<jats:sub>2</jats:sub>, are 82,758 (deterministic) and 49,830 (stochastic), which shows high volatility in the annual average shadow price. In addition, we find that the results of the deterministic method without any random errors show a large variation in the trends of technical inefficiency and shadow price, while the stochastic method with random errors yields only moderate volatility. Our empirical results are expected to assist policymakers in determining how much potential mitigation can be achieved through improved efficiency, and the range of the CO<jats:sub>2</jats:sub> shadow price will contribute to more efficient policy tools. </jats:p>

Enhancing the Quality of Living Environment - the Utilization of Carbon Dioxide as a Green Industry Innovation

“…The expertise of policymakers in carrying out exact calculations to calculate the potential price range achieved in carbon mitigation must be adequately studied so that the expected results become a positive contribution to the State (Oh et al, 2020). The results of the evaluation in low-carbon mitigation are useful for the process of improving city performance for a certain period.…”