Potential carbon emission abatement cost recovery from carbon emission trading in China: an estimation of industry sector

Purpose This study provides an estimation of CO2 emission abatement costs in China's industry sector during the period of 2006-2010, and additionally provide an ex-post estimation of CO2 abatement cost savings that would be realized if carbon emission permits trading among different industry sectors of 30 provinces in China during the same period was allowed, in order to answer the question that whether the industrial carbon emission abatement cost can (partially) be recovered from carbon emission trading in China. Design/methodology/approach The joint production framework associated with the environmental technology is utilized for formulating the models for estimating abatement costs and simulating emission permits trading scheme. Several Data Envelopment Analysis (DEA) based models that could deal with both the desirable and undesirable outputs with in the above framework is utilized for abatement cost saving estimation. The weak disposability assumption and variable returns to scale assumption are applied in the modelling. Findings In China's industry sector, during 2006-2010: (i) The estimated CO2 emission abatement cost is 1842 billion yuan which accounts for 2.45% of China¡¯s total industrial output value; (ii) The emission abatement cost saving from emission permits trading would be 315 billion yuan, which accounts for 17.12% of emission opportunity abatement cost. (iii) Additional 1065.95 million tons of CO2 emission reductions would be realized from emission permits trading, and this accounts for 4.75% of the total industrial CO2 emissions. Research limitations/implications The estimation is implemented at the regional level, i.e., the emission permits trading subjects are the whole industry sectors in different Chinese provinces, because of the data limitation in this study. Further estimation could be implemented at the enterprise level in order to provide a deeper insight into the abatement cost recovery from emission permits trading. Practical implications The estimation models and calculation process introduced in this study could be applied for evaluating the efficiency and effectiveness of pollutant emission permits trading schemes from the perspective that whether these market-based abatement policy instruments help to realize the potential abatement cost savings. Originality/value To the best of our knowledge, no study has provided the estimation of CO2 emission abatement cost and the estimation of CO2 abatement cost saving effect from emission permits trading for China¡¯s industry sector. This study provides the first attempt to fill this research gap.