Estimating the environmental efficiency and marginal CO2 abatement cost of coal-fired power plants in China

Abstract

We estimate the environmental efficiency, reduction potential and marginal abatement cost of carbon dioxide (CO2) emissions from coal-fired power plants in China using a novel plant-level dataset derived from the first and second waves of the National Economic Survey, which were implemented in 2004 and 2008, respectively. The results indicate that there are large opportunities for CO2 emissions reduction in China's coal-fired power plants. Given that all power plants operate fully efficiently, China's CO2 emissions in 2004 and 2008 could have been reduced by 52% and 70%, respectively, accompanied by an expansion in electricity output. In other words, the opportunities for ‘double dividend’ exist. In 2004, the average marginal abatement cost of CO2 emissions for China's power plants was approximately 955 Yuan/ton, whereas in 2008, the cost increased to 1142 Yuan/ton. The empirical analyses show that subsidies from the government can reduce environmental inefficiency, but the subsidies significantly increase the shadow price of the power plants. Older and larger power plants have a lower environmental efficiency and marginal CO2 abatement cost. The ratio of coal consumption negatively affects the environmental efficiencies of power plants.