Energy and environment: Reducing CO2 emissions from the electric power industry

The purpose of this paper is to (1) investigate the production (cost) structure of electric power generation in view of CO2 emissions reduction policies; (2) empirically analyze the role of uncontrolled CO2 emissions in shaping the production structure of the industry; and (3) explore long-run strategies for reducing CO2 emissions generated by the industry. For the implementation of our purpose, two methodological approaches were used: the econometric approach and the economic-engineering approach. The econometric approach, based on the translog production technology, focuses on issues relating to cost structure of the industry, input relationships (i.e., substitutability vs. complementarity), and related CO2 policy issues. On the other hand, the economic-engineering approach, which is a synthesis of a probabilistic simulation and a dynamic programming model, develops least-cost expansion plans aimed at reducing CO2 emissions to desired levels.