Greenhouse Gas Emissions and the Productivity Growth of Electricity Generators

‘Greenhouse Gas Emissions and the Productivity Growth of Electricity Generators’ by Greg Murtough, David Appels, Anna Matysek, and C. A. Knox Lovell, was released on 18 December 2001. This paper develops and applies a measure of productivity growth that can incorporate unpriced environmental impacts. The methodology builds on the established technique of data envelopment analysis and is applied to one of the more significant environmental issues facing Australia - greenhouse gas emissions from electricity generation. The main finding of the paper is: productivity growth estimates for electricity generators can change significantly when allowance is made for greenhouse gas emissions. The paper develops an innovative statistical technique for incorporating environmental impacts in productivity estimates. It shows that accounting for greenhouse gas emissions reduces estimated productivity growth when emission intensity is rising and increases it when emission intensity is falling. In the late 1990s, changes in emission intensity (and hence the impact of emissions on estimated productivity growth) appear to have been largely driven by movements in thermal efficiency (electricity supplied per unit of fuel).The paper also found that there are regional differences in the cost (in terms of foregone output of electricity) of abating emissions.The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.