CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

Abstract: We develop a network technology model for pollution abatement that distinguishes between the two primary forms that abatement can take: Prevention of emissions from occurring in the first place, and treatment of any emissions that are generated by the production process. Our network model separates the production process into two stages, an initial production and prevention stage and a final treatment (or cure) stage. We allow for reallocation of abatement resources across the production stages, in order to improve overall abatement and production efficiency and better understand the tradeoffs between the two forms of abatement. This framework is relevant in practice for a number of industrial production processes, including manufacturing and energy, which employ multiple abatement measures at different stages of production. To illustrate, we apply the prevention-treatment network model to estimate the production and abatement technology for firms in Sweden’s pulp and paper manufacturing sector. We find that with reallocation of prevention and treatment resources, the industry could achieve further gains to both production and emissions reductions, relative to those estimated using the more common single-stage approach to technology estimation for pollution-generating processes. In practice, these results could be used by producers for improving managerial efficiency, and by policy makers to better target abatement incentives to the most effective aspects of production.

Keywords: Network DEA; Carbon Policy; Abatement Cost; Environmental Performance

JEL-codes: D21; D22; D24

44 pages, August 20, 2019

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