Reducing CO2 emissions of Japanese thermal power companies: a directional output distance function approach

This article examines the thermal power generation efficiency of ten Japanese electric power companies and the shadow prices of carbon dioxide (CO 2 ) by employing a directional output distance function (DODF) with panel data for 1990–2011. We find that the shadow price of CO 2 varies greatly between US$1.49 and US$288.82, depending on the company’s production strategy concerning energy supply and CO 2 emissions. These shadow prices give us clues to understand how the electric power companies may respond to environmental regulations, such as environmental tax and emission trading systems. According to the DODF, an additional 53571 GWh of electricity could have been generated in 2011 at the cost of an increase of 40105 thousand tonnes of CO 2 , if the companies would have operated efficiently giving little consideration to CO 2 emissions reduction. These increases are equivalent to 8.77 and 9.18 % of total electricity and CO 2 emissions, respectively, from the ten electric power companies in 2011. On the other hand, if the companies would have operated efficiently and given first priority to CO 2 emissions reduction, a further 58002 thousand tonnes of CO 2 , equivalent to 13.28 % of their total CO 2 emissions in 2011, could have been reduced as a whole.