The shadow price of substitutable sulfur in the US electric power plant: A distance function approach

Given restrictions on sulfur dioxide emissions, a feasible long-run response could involve either an investment in improving boiler fuel-efficiency or a shift to a production process that is effective in removing sulfur dioxide. To allow for the possibility of substitution between sulfur and product...

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Bibliographic Details
Published inJournal of environmental management Vol. 77; no. 2; pp. 104 - 110
Main Author Lee, Myunghun
Format Journal Article
LanguageEnglish
Published Oxford Elsevier Ltd 01.10.2005
Elsevier
Academic Press Ltd
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Summary:Given restrictions on sulfur dioxide emissions, a feasible long-run response could involve either an investment in improving boiler fuel-efficiency or a shift to a production process that is effective in removing sulfur dioxide. To allow for the possibility of substitution between sulfur and productive capital, we measure the shadow price of sulfur dioxide as the opportunity cost of lowering sulfur emissions in terms of forgone capital. The input distance function is estimated with data from 51 coal-fired US power units operating between 1977 and 1986. The indirect Morishima elasticities of substitution indicate that the substitutability of capital for sulfur is relatively high. The overall weighted average estimate of the shadow price of sulfur is −0.076 dollars per pound in constant 1976 dollars.
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ISSN:0301-4797
1095-8630
DOI:10.1016/j.jenvman.2005.02.013