Non-separable pollution control: Implications for a CO_2 emissions cap and trade system

摘要

The federal government now confronts considerable political pres-sure to add CO_2to the existing set of criteria air pollutants. Aswith current criteria pollutants, proposals call for control of CO_2,assuming that the control of each of the three criteria pollut-ants is separable from the others. However, control of CO_2, SO_2,and NOXemissions is most appropriately viewed as joint ratherthan separable based on engineering relationships. Empirically,we also find considerable jointness. Using a 10-year panel for77 U.S. electric utilities, which comprise the largest sector interms of energy-related CO2emissions, we estimate a multiple-input, multiple-output directional distance function combininggood inputs (production capital, pollution control capital, labor, andenergy) and a bad input (sulfur burned) to produce good outputs(residential and industrial/commercial electricity production) andbad outputs (SO_2, NOX, and CO_2). We find that while utilities do notdirectly control CO_2emissions, considerable jointness exists acrossSO_2, NOX, and CO_2emissions. Failure to account for this jointnessincreases the cost of pollution control, making it less acceptable tothe public and policymakers. We also compute the technical effi-ciency of our set of utilities and find that considerable cost savingscan be achieved by adopting the best technology for production ofelectricity and reduction of pollutants