Marginal CO2 and SO2 Abatement Costs and Determinants of Coal-Fired Power Plants in China: Considering a Two-Stage Production System with Different Emission Reduction Approaches

Abstract

Marginal abatement cost (MAC) plays an essential role in pricing pollutants and guiding environmental policies. Considering the heavy polluting nature of China’s coal power industry, this paper aims at providing companies and policymakers with more comprehensive information on the cost of abatement by estimating the MACs of CO2 and SO2 for coal-fired power plants (CFPPs) in China. This study contributes to the literature by considering an interconnected two-stage production system to investigate. The estimation framework is advanced in combining the electricity production and pollution abatement process of CFPPs into a convex quantile regression (CQR) model. The results show that the averages of MAC for CO2 and SO2 are estimated to be 367.56 Yuan/ton and 662.30 Yuan/ton, respectively, indicating that the reduction of such emissions is still costly. The heterogeneous analysis then indicates that large CFPPs, central-government-owned power plants (CGOPPs), and low-regulated CFPPs tend to possess lower MACs for CO2. Regarding SO2, large and medium-sized power plants show significantly larger MACs than small plants. In addition, the MACs of SO2 for CGOPPs and high-regulated CFPPs are more concentrated at high levels. In the second part, the Tobit regression analysis was used to discuss the determinants of MACs for CO2 and SO2. Factors like carbon emission intensity, load, and operating hours can notably decrease MACs for CO2, while MACs for SO2 tend to be positively affected by the total abatement cost and the abatement rate of the FGD equipment. In addition, the MACs for the large CFPPs, CGOPPs, and high-regulated CFPPs are more likely to be affected by the selected influence factors. Based on these results, we conclude with some policy recommendations.