At What Cost dO We Reduce Pollution? Shadow Prices of SO₂ Emissions

• Published in: The Energy journal (Cambridge, Mass.) Vol. 19; no. 4; pp. 63 - 83
• Main Author: Swinton, John R.
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA Energy Economics Education Foundation, Inc 01.10.1998; SAGE Publications; International Association for Energy Economics; Sage Publications Ltd. (UK); Oelgeschlager, Gunn & Hain, Publishers
• Series: The Energy Journal
• Subjects: Acid rain; Air cleanliness; Air pollution; Air pollution caused by fuel industries; Applied sciences; Coal; Coal-fired power plants; Cost control; Distance functions; Electric utilities; Electricity; Emission allowances; Emissions; Emissions credit trading; Emissions reduction; Energy; Energy. Thermal use of fuels; Environmental aspects; Environmental regulations; Exact sciences and technology; Flue gas; Fossil fuels; General. Regulations. Norms. Economy; Industrial plant emissions; Legislation; Marginal abatement costs; Opportunity costs; Outdoor air quality; Pollutant emissions; Pollution control; Pollution control costs; Power plants; Property rights; Scrubbers; Shadow prices; Studies; Sulfur; Sulfur dioxide; United States; North America; America; United States > US; coal-fired electricity; abatement costs; Air pollution; US EPA; sulfur dioxide (SO2) emissions; Electric power plant; Theoretical model; Coal; Acid rain; Cost analysis; Marginal cost; Pollutant emission; Sulfur dioxide
• ISSN: 0195-6574; 1944-9089
• DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No4-3

The U.S. EPA's infant market for SO₂ emissions has the potential for improving the cost effectiveness of reducing acid rain pollutants. If the market works as planned, over time one should see the cost of reducing additional amounts of sulfur dioxide converge across plants. The results of the study described here demonstrate that before the market opened marginal abatement costs varied wildly across plants. This work provides estimates of the shadow price of SO₂ abatement using the output distance function approach for Illinois, Minnesota and Wisconsin coal-burning electric plants. The results demonstrate that the coal-burning electric plants with the highest emissions rates are also the plants with the lowest marginal abatement costs, a fact that may explain lower-than-expected prices in the new market for allowances. The data include information about plants with installed scrubber capital allowing for an investigation of the effect of scrubber capital on marginal abatement costs.