Estimation of the value of the marginal product of emission in a country where emissions output is regulated — an empirical study

Emissions resulting from the production process can be characterized as “use of the elimination and disposal services of the ecological system”. Hence, they are “use of natural resources” and thus an input to production. The present paper discusses an approach to evaluate the returns of these kind of services as a production factor. First, four main types of industrial emission are chosen —SO <Subscript>2</Subscript>,CO <Subscript>2</Subscript>,NO <Subscript>x</Subscript>andparticulate matter — and integrated in a Cobb-Douglas production function. With this approach, the production elasticities and the marginal product of these types of emission can be estimated. Based on these results and assuming that marginal product equals price, the demand curve for emission is estimated. With this demand curve the consequences of different kinds of environmental policy are considered. Under further assumptions of optimal behaviour it can be shown that the demand curve for emission is equal to the curve of marginal costs of avoidance (MCA). Thus, the estimates of the demand curves can be considered as estimates of the MCA-curves. Furthermore the price elasticities of these four types of emission are estimated with this approach. The method used in the paper is suggested for calibration of CGE models. Copyright Kluwer Academic Publishers 1995