Capturing climate's effect on pollution abatement with an improved solution to the omitted variables problem

Climate greatly affects the SO₂ concentration abatement efforts of Mae Moh power plant which burns high sulfur content lignite in Northern Thailand. In summer months, hot air rising draws Mae Moh's SO₂ emissions out of the Mae Moh valley. In contrast, temperature inversions in winter months prevent hot air in the valley from rising, resulting in the trapping and concentrating of SO₂ emissions in the valley. The climatic conditions that affect Mae Moh's abatement efforts are so complex that adequately modeling them has been elusive. In this paper we use a new analytical technique, BD-RTPLS, which produces reduce form estimates while minimizing the influence of omitted variables, like climate. Using BD-RTPLS and monthly data, we tell Mae Moh how much electricity needs to be sacrificed from which generating units to most efficiently reduce SO₂ concentrations in any given month.