Shadow Price of CO 2 Emissions in Indian Thermal Power Sector

This paper estimates production efficiency and shadow prices of CO2 emissions for thermal power plants in India. It employs a unique sample of 56 power plants for 2000-2013 acquired primarily by invoking the Right to Information (RTI) Act, 2005. It estimates parametric quadratic directional output distance function using linear programming approach. We find that CO2 intensity of electricity generation could be reduced about 16 and 23 percent if the power plants were made to operate efficiently. The estimated av erage shadow prices of US$ 14.54 and 18.68 for a ton of CO 2 emission, depending upon a plant ’ s strategies for enhancing electricity and reducing CO 2 emissions, reflects that the prevailing Clean Energy Cess of US$ 6.15 a ton of coal or US$ 3.81 a ton of CO2 emissions is not enough to induce the required emission mitigation. Significant variation in the estimates of shadow prices calls for the application of economic instruments for cost effective reduction of the emissions.