Reducing CO2 emissions from drinking water treatment plants: A shadow price approach

The water industry is currently facing the challenge to reduce its carbon footprint. Although the majority of previous studies have focused on wastewater treatment energy issues, a non-negligible quantity of energy is consumed in drinking water treatment plants (DWTPs). To develop environmental policies aimed to reduce CO2 emissions, it is essential to estimate the shadow price of CO2 because this can provide information about the marginal abatement cost of CO2. This paper computes the shadow price of CO2 for a sample of Chilean DWTPs using directional distance function estimation. The potential reduction of CO2 emissions for each DWTP is also calculated. Finally, applying a non-parametric hypothesis test, factors that affect CO2 shadow prices are investigated. The results indicated that the Chilean DWTPs evaluated have notable room to reduce CO2 emissions. Moreover, the average shadow price of CO2 for DWTPs is 5.7% of the drinking water price. The methodology and results of this study are of great interest for water companies and policy makers to introduce incentives for promoting the transition towards an urban water cycle with a low carbon footprint.