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An empirical analysis of the CO2 shadow price in Chinese thermal power enterprises

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  • Wei, Chu
  • Löschel, Andreas
  • Liu, Bing

Abstract

This paper estimates the shadow price of CO2 and explores its determinants for thermal power enterprises in China. Using a parametric quadratic directional distance function, we evaluate the inefficiency and shadow price of CO2 for 124 power enterprises in 2004, applying deterministic and econometric methods. A regression analysis is undertaken to examine the factors that drive shadow prices. Our results indicate that there are large inefficiencies in terms of electricity production and CO2 emissions. The shadow price is a negative function of firm size, age, and coal share, and is positively correlated with the technology level. This correlation between shadow prices and its determinants is not sensitive to changing assumptions regarding directional vectors, although such changes do alter the distribution of shadow prices. The large variation witnessed in shadow prices across power enterprises argues in favor of market-based regulation such as an emissions trading system as opposed to the command-and-control regulation currently used in China to minimize overall abatement cost.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 40 (2013)
Issue (Month): C ()
Pages: 22-31

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Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:22-31

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: CO2; Shadow price; Directional distance function; Quadratic function; China; Thermal power enterprise;

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Cited by:
  1. Zhang, Ning & Kong, Fanbin & Choi, Yongrok & Zhou, P., 2014. "The effect of size-control policy on unified energy and carbon efficiency for Chinese fossil fuel power plants," Energy Policy, Elsevier, vol. 70(C), pages 193-200.

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