Document Type

Dissertation

Date of Award

1977

Keywords

Electric power-plants, Environmental aspects, Environmental engineering

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

V. Kerry Smith

Second Advisor

Thomas G. Cowing

Third Advisor

Alphonse G. Holtmann

Abstract

The purpose of this research is to formulate a production technology model which accounts for air- and water-borne residuals. Specifically, the objectives of the research are:

  1. to assess the role of air- and water-borne residuals in the production technology of the plants;
  2. to estimate the partial elasticities of substitution between labor and fuel;
  3. to test the input homotheticity of the production technology;
  4. to test the hypotheses of separability between the joint outputs (i.e. electricity and residuals emissions) and factor inputs (labor and fuel).

The study presents the estimates of the role of air- and water-borne emissions in the ex post production technology for the 128 fossil-fuel fired steam-generating plants constructed during the period of 1948 and 1968 in the United States. A joint output translog cost function is specified with the emissions of suspended particulates, sulphur dioxides, nitrogen oxides, and waste heat considered as the joint outputs with the saleable output (electricity) to estimate the production technology. The plants in the sample are stratified into five vintages according to the years of construction, following the pattern of Dhrymes and Kurz. Their behavior of the operating years 1969 and 1970 is observed. The data are obtained from the Federal Power Commission’s Steam-Electric Plant Construction Cost And Annual Production Expenses and Steam-Electric Plant Air and Water Quality Control Data annual reports.

In examining the ex post technology for the electric industry, the cost-minimizing behavior for the plant is postulated, and the capital equipment at the plant level is best treated as a fixed input in keeping with the putty-clay nature of the technology, so that the effects of the rate-base regulation (the Averch-Johnson effects) on the firm behavior are not directly considered. This maintained hypothesis allows direct testing of the characteristics of the joint output production technology from the cost function estimates.

The overall results strongly support the inclusion of both air- and water-borne residuals measures in estimating the nature of the production technology for fossil-fuel plants for all vintages. Furthermore, they suggest that, over time, there must have been a change in the “perceived” relationship between the production of electricity and the residuals emissions so that these outputs cannot be considered as separable from factor inputs in the most recent vintages (four and five, built during 1960 and 1968).

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