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Estimating Regional Shadow Prices of CO 2 in China: A Directional Environmental Production Frontier Approach

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  • Qunli Wu

    (Department of Economics and Management, North China Electric Power University, 689 Huadian Road, Baoding 071003, China
    Beijing Key Laboratory of New Energy and Low-Carbon Development (North China Electric Power University), Beijing 102206, China)

  • Huaxing Lin

    (Department of Economics and Management, North China Electric Power University, 689 Huadian Road, Baoding 071003, China)

Abstract

Shadow price of carbon dioxide (CO 2 ) plays a fundamental role in evaluating CO 2 abatement cost and formulating regional environmental policies. In this study, CO 2 shadow prices are estimated in 29 provinces of China from 2006 to 2015. Directional Environmental Production Frontier Function (DEPFF) measures the distance between actual production points and the effective production frontier surface, which yields the shadow prices of CO 2 emission. With the relationship between CO 2 emission and Gross Domestic Product (GDP) growth which is encapsulated in the shadow price, the provinces are classified into three groups: acceleration zone, buffer zone, and deceleration zone. The acceleration zone is characterized by a smaller emission growth driving a greater economic growth, and the provincial average price of CO 2 is 184.16 US$/ton. In the buffer zone, a significant emission increase brings about less economic growth with the average shadow price at 86.57 US$/ton. In the deceleration zone, a high growth rate of CO 2 emissions is accompanied with an economic output decrease, which implies that the shadow price of CO 2 should be negative, and the mean value is −200.7 US$/ton. As the CO 2 abatement potential differs significantly across provinces, the environmental policy and CO 2 reduction targets should be region-specific.

Suggested Citation

  • Qunli Wu & Huaxing Lin, 2019. "Estimating Regional Shadow Prices of CO 2 in China: A Directional Environmental Production Frontier Approach," Sustainability, MDPI, vol. 11(2), pages 1-19, January.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:2:p:429-:d:197917
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