Characteristics of a polluting technology: theory and practice

We use a quadratic directional output distance function to measure the technical efficiency of 209 electric utilities that produce electricity and a polluting byproduct, SO2 before (1993) and after (1997) implementation of Phase I regulations of the acid rain program. We also estimate the shadow price of SO2 and the output elasticity of substitution between electricity and SO2 and find that electric utilities can reduce emissions by 4000-6000 tons by reducing inefficiency, the shadow price of SO2 increases from 1993 to 1997, and that the elasticity of substitution indicates that the ability to trade reductions in electricity production for reductions in SO2 emissions became more difficult between 1993 and 1997.