Article thumbnail

Estimation of marginal abatement costs for undesirable outputs in India's power generation sector: An output distance function approach.

By Manish Gupta


Many production activities generate undesirable byproducts in conjunction with the desirable outputs they produce. The present study uses an output distance function approach and its duality with the revenue function to estimate the marginal abatement cost of CO2 emissions from a sample of thermal plants in India. Two sets of exercises have been undertaken. The marginal abatement cost is first estimated without considering the distinction between the clean and the dirty plants (model-1) and then by differentiating between the two (model-2). The shadow prices of CO2 for the coal fired thermal plants in India for the period 1991-92 to 1999-2000 was found to be Rs. 3,380.59 per ton of CO2 as per model-1 and Rs. 2401.99 per ton of CO2 as per model-2. The wide variation noticed in the marginal abatement costs across plants is explained by the ratio of CO2 emissions to electricity generation, the different vintages of capital used by different plants in the generation of electricity and provisions for abatement of pollution. The relationship between firm specific shadow prices of CO2 and the index of efficiency (ratio of CO2 emission and electricity generation) points to the fact that the marginal cost of abating CO2 emissions increases with the efficiency of the thermal plant.Power sector

OAI identifier:

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.

Suggested articles


  1. (1990). A Distance Function Approach to Price Efficiency”,
  2. (1998). At What Cost do We Reduce Pollution? Shadow Prices of SO2
  3. (1953). Cost and Production Functions.
  4. (1993). Derivation of Shadow Prices for Undesirable Outputs: A Distance Function Approach” The Review of Economics and
  5. (1994). Do Environmental Regulation Lead Firms into Trouble? Evidence from a Two Stage Distance Function Model with Panel Data. Finnish Forest Research Institute Research Paper 509, Helsinki Research Centre,
  6. (1999). Economic Evaluation of Development Projects: A Case Analysis of Environmental and Health Implications of Thermal Power Projects in India”,
  7. (1998). Economic Survey 1997-98, Economic Department, Ministry of Finance, Government of India,
  8. (1985). Emissions Trading: An Exercise in Reforming Pollution Policy. Washington DC : Resources fot the Future.
  9. (2001). Environmental and Economic Accounting for Indian Industry”,
  10. (1996). Essays on the Impact of Pollution Control on a Firm: A Distance Function Approach”,
  11. (2002). Estimating Marginal Abatement Costs of SPM: An Application to Thermal Power Sector in India”,
  12. (1988). Fundamentals of Production Theory,
  13. (1992). GAMS: A User’s Guide.
  14. (1953). Index Numbers and Indifference Surfaces”,
  15. (1995). Intergovernmental Panel on Climate Change,
  16. (2002). Measuring the Cost of Environmentally Sustainable Industrial Development in India: A Distance Function Approach”,
  17. (1995). Multi-Output Production and Duality: Theory and Applications.
  18. (1989). Multilateral Productivity Comparisons when Some Outputs are Undesirable: A Distance Nonparametric Approach” The Review of Economics and
  19. (1983). Multilateral Productivity Comparisons with Undesirable Outputs”,
  20. (1968). On Estimating the Industry Production Function”,
  21. (1998). Shadow Prices and Bad Commodities”,
  22. (1994). Shadow Pricing of Labor: A Translog Distance Function Approach”,
  23. (1985). The Measurement of Efficiency of Production.
  24. (1996). The Price of Pollution: A Dual Approach to Valuing SO2 Allowances”,
  25. (1988). The Theory of Environmental Policy. Cambridge:
  26. (1970). Theory of Cost and Production Functions,