The role of air and water residuals for steam electric power generation

The purpose of this paper is to analyze: (a) the role and the nature of price-induced switching behavior between fossil fuels (i.e., coal, oil, and natural gas) in the western European power sector; as well as (b) the fuel choice impacts of a number of public policies implemented in this sector during the last 20 years. The analysis is conducted within a Generalized Leontief cost function framework, and employs pooled data across eight countries over the time period 1978–2004. We present short-run own- and cross-price elasticities of fossil fuel demand, and assess the impacts of a set of government policies implemented over this time period. The empirical results show evidence of notable short-run interfuel substitution between oil and gas, and particularly in countries where fossil fuels are used extensively for both base and peak load purposes. These findings support the notion that ex post fossil fuel substitution takes place in dual- and multi-fired plants, by switching load between different single-fuel fired plants, as well as through the conversion of power plants to be able to burn alternate fuels. The results also illustrate that different public policies – i.e., removal of coal subsidies, electricity market liberalization etc. – have had profound impacts on fossil fuel choices and have in particular favored power generation gas use at the expense of coal. Finally, the paper makes use of the empirical results to simulate the fuel switching impacts of different carbon prices within the European Emissions Trading Scheme (EU ETS).

The concept of efficiency measurement is based on the definition of a frontier that envelopes observed production plans. The effect of pollution prevention and environmental compliance on productive efficiency is typically studied by considering pollution as not freely disposable (i.e., there is a cost incurred to dispose of pollution) or by assigning shadow prices to pollution outputs. However, the frontier along with the required technological assumptions needed for its definition may be replaced with the concept of pairwise dominance. With data from a manufacturing facility, the use of pairwise dominance allows one to consider a wide spectrum of inputs and outputs. Furthermore, the approach of benchmark correspondence is augmented so as to consider environmental performance. Pairwise dominance is applied to segregate production plans into sets according to their relative environmental and productive efficiency performance. These sets in conjunction with appropriately identified reference production plans are used to define distance-based measures of efficiency and environmental performance. Pollution prevention activities of a printed circuit board manufacturing facility motivated the development of the reported analytical framework.

In this paper, we model the effects of environmental controls when these are viewed as restricting disposal of outputs. We specify an unregulated and a regulated multi-output technology satisfying strong (free) disposability of outputs and weak (restricted) disposability of outputs, respectively, By comparing the relative productive efficiency of firms using restricted and unrestricted technologies we derive a measure or index of the effect of environmental regulation. We employ recently developed programming models to calculate this measure of the cost of environmental controls for a sample of steam electric plants in the U.S.