Environmental and Cost Efficiency Analysis of Electric Power Generation Using DEA-MB Model

This paper applies a data envelopment analysis procedure that incorporates the Mass Balance to estimate the allocations of coal, gas and oil inputs that minimize carbon emissions and costs. Findings for our three-input(coal, gas and oil) sample show that there would be a 79% increase in cost for moving from the cost efficient point to the carbon efficient point, while there would be a 38% increase in carbon for moving from the carbon efficient point to the cost efficient point. These conclusions indicate that, in general, the gap between efficient cost and efficient environmental production is wide, and would require substantial policy intervention or market adjustment before it could be narrowed. The paper also extends the application of the data envelopment analysis-mass balance (DEA-MB) methodology by illustrating how the procedure can be used to identify the consequences of specific decisions for individual plants. The methodology for detailed plant analysis that offers enhanced analytical decision-making at the individual plant level for regulators and managements.