Managing emissions allowances of electricity producers to maximize CO2 abatement: DEA models for analyzing emissions and allocating emissions allowances

This paper presents an application of Data Envelopment Analysis (DEA) in ecological efficiency evaluation of electricity producers and allocation of the CO2 emission allowances. Unlike two very popular approaches for allocating CO2 emission allowances (based on most recent CO2 emission or electricity generated data), we propose a model for allocating these allowances based on ecological efficiency scores of the electricity producers. Our model involves the influence strategy of rewarding ecological efficiency and penalizing ecological inefficiency behaviours of electricity producers. The model is tested and its usefulness is demonstrated using a real world problem of electricity producers in the US.