EMISSION SHADOW PRICE ESTIMATION BASED ON DISTANCE FUNCTION: A CASE OF THE CZECH ENERGY INDUSTRY

The main aims of the paper are to estimate shadow prices of classical airborne pollutants in the Czech energy sector and to analyze the main drivers of Marginal abatement cost development. We describe the theoretical concept of Input Distance Function based on Shephard (1970) theory of duality. We explain also the shadow pricing model that derives the shadow price from estimated Input Distance Function. Employing parameterized Input Distance Function, we estimate the shadow prices of SO2, NOx, PM, CO and VOC on firm level data from 9 firms producing heat and electricity over the period 2002-2007. The medians of our shadow prices estimates are 8374, 1198, 2805, 6051 and 8549 (sic) per ton of PM, SO2, NOx, CO and VOC, respectively. We decompose shadow prices estimates and test the hypotheses that the marginal abatement cost decline over time; that marginal abatement cost rice with the declining emission level; and that marginal abatement cost rice with declining emission rate.