• Environmental and Resource Economics Review
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• v.19 no.4
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• pp.733-752
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• 2010

This study applies the Luenberger indicator approach to estimate productivity of the Korean fossil-fueled power plants. A panel data set of 25 power plants was used. The method incorporates $CO_2$ emission as an undesirable output and shows that ignoring $CO_2$ emission overestimates the productivity change. There are two sources of overestimation. First, the usual method estimates productivity change ignoring the increase in $CO_2$ emission that occurred during the study period. Second, the productivity change estimated by the usual method that does not incorporate $CO_2$ emission is very sensitively affected by the change in operation rate. The paper decomposes the productivity change into the efficiency change and the technical change. The results show that the two sources contribute to the productivity change almost equally. It is also shown that the size and the pattern of productivity change are dependent on the plants' fuel types. Non-LNG power plants which saved their energy consumption and thereby reduced their $CO_2$ emission have achieved relatively high rate of productivity improvement.