A nonparametric method to estimate a technical change effect on marginal abatement costs of U.S. coal power plants

- Develops a nonparametric methodology to estimate the effect of technical change on marginal abatement cost.
- Decomposes marginal abatement cost changes into technical and non-technical change effects.
- Estimates technical change reduced the NOx marginal cost by 28.3 percent in 2000-2004 and 26.5 percent in 2004-2008.
- Install of advanced NOx abatement equipment between 2000-2008 has caused an overall increase in marginal abatement cost.

The literature usually assumes that technical change reduces marginal abatement cost; however, recent results suggest that precisely the opposite occurs. This paper proposes a nonparametric method to determine the effect of technical change on marginal abatement cost. The method decomposes NOx marginal abatement cost changes in 2000-2004 and in 2004-2008 for 325 boilers operating in 134 U.S. bituminous coal power plant into technical and non-technical change effects. We find that technical change reduces the NOx marginal cost about 28.3% in 2000-2004 and 26.5% in 2004-2008. However, more stringent regulations enacted the NOx budget program results in lower NOx emission levels as plant operators install more advanced NOx abatement equipment which in turn causes an overall increase in marginal abatement cost.