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Resource Use Efficiency of US Electricity Generating Plants During the SO 2 Trading Regime : A Distance Function Approach

Resource use efficiency is considered as the product of technical and environmental efficiencies. Three methods are used to calculate the resource use efficiency: stochastic frontier analysis, parametric and non-parametric linear programming. The geometric means of three methods for technical efficiency, environmental efficiency and resource use efficiency are 0.737, 0.335 and 0.248, respectively. The regression analyses of performance across plants shows units in phase I of the SO2 trading program suggest that the market for SO2 allowances, per se, may not be minimizing compliance cost. It is found that a decrease in SO2 emission rate not only increases environmental efficiency but also leads to an increase in resource use efficiency. This finding concurs with the hypothesis that enhancement in the environmental performance of a firm leads to an increase in its overall efficiency of resource use as well.