Sulfur Dioxide Allowance Trading and Technological Progress

34 Pages Posted: 13 Dec 2006

See all articles by Surender Kumar

Surender Kumar

University of Delhi - Department of Business Economics

Date Written: December 2006

Abstract

This study estimates allowance price induced technological progress using directional output distance function for a panel data of 80 plants of US fossil fuelled electricity generating industry over the period 1995 to 2001. This application yields several important insights. First, we observe the presence of larger allowance price induced technical change effects in the plants that participated in allowance trading in comparison to the other plants. This supports the argument that emission permits spur higher technological advancements in comparison to performance based technological standards. Second, the magnitude of output bias arising from exogenous forces is greater than the output bias arising from allowance prices. Third and finally, the estimates of elasticity of substitution show that over the period of time further reduction in SO2 emissions is becoming costlier.

Keywords: SO2 emissions, allowance prices, technological progress, bias in technical change, Morishima elasticity of substitution

JEL Classification: C63, D24, O14, Q12, Q24, Q53

Suggested Citation

Kumar, Surender, Sulfur Dioxide Allowance Trading and Technological Progress (December 2006). Available at SSRN: https://ssrn.com/abstract=951141 or http://dx.doi.org/10.2139/ssrn.951141

Surender Kumar (Contact Author)

University of Delhi - Department of Business Economics ( email )

New Dehli
India