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

Abstract

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. Keywords-environmental and cost efficienc; DEA; MB; electric power generation I. INTRODUCTION With the development of economic, the electric power industry is also increasingly rapidly. The Environmental Protection Agency calculates that electricity generation accounts for 40% of carbon dioxide emissions. As government and industry begin to devise mechanisms for reducing GHG, analytical methods that provide better information to policy making and industry decisions can result in improved economic and environmental outcomes. Some researches have applied Data Envelopment Analysis (DEA) to develop technical efficiency models for firms that include variables measuring pollution, but none of these DEA studies have incorporated carbon emissions and extern environmental estimates into their models. In this paper, we apply Data Envelopment Analysis-Mass Balance (DEA-MB) methodology to analyze the allocation of fossil-fuels in electric power generation, considering both economic and carbon inputs and outputs. In addition, the paper also extends the application of the 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. II. DEA-MB MODEL