Journal
ENERGY ECONOMICS
Volume 29, Issue 3, Pages 503-519Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.eneco.2006.01.005
Keywords
output distance function; generalized maximum entropy; linear inequality restrictions; abatement costs; electricity
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In this paper, we demonstrate the use of inequality restricted generalized maximum entropy estimation to calculate shadow prices of effluents in a distance function framework. We estimate the shadow prices of sulfur dioxide, nitrogen oxides, carbon dioxide and mercury emissions from a panel of 260 coal-fired U.S. electric power plants. This modeling procedure delivers results, which are consistent with existing abatement cost evidence produced with both deterministic approaches and forecasting models. Our results imply that it may not be possible to duplicate the remarkable success of the SO(2) trading system for the other pollutants because of their greater industry abatement cost homogeneity. (C) 2006 Elsevier B.V. All rights reserved.
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