Estimating Marginal Abatement Costs of SPM: An Applicaiton to the Thermal Power Sector in India

This paper provides estimates of firm specific marginal abatement costs of suspended particulate matters (SPM) for the thermal power sector in India. To derive these costs, the duality of the output distance function and the revenue function is used. This study uses the output distance function framework to estimate marginal abatement costs or shadow prices of the pollutant for individual plants. The average shadow price in 1991-92 of SPM emissions for 33 thermal power plants in India has been estimated to be 145 rupees per kilogram. This figure can be used for designing market-based instruments for controlling pollution in the thermal power sector in India since there is wide variation in the shadow prices across the plants. Moreover, this study also finds that switching to lower ash content coal has more cost advantages for controlling pollution in the Indian thermal power sector.