A critical review of distance function based economic research on China’s marginal abatement cost of carbon dioxide emissions

The last few years have witnessed a rapidly emerging literature estimating the marginal abatement cost, or the shadow price of carbon dioxide (CO2) emissions in China using parametric or non-parametric distance function approaches. This is largely driven by the fact that China has become the world’s largest carbon emitter and thus faced mounting domestic and international pressure to mitigate emissions. There is an urgent policy need to model and predict the cost burdens of various mitigation scenarios. Consistent information about the marginal abatement cost of CO2 emissions plays a crucial role in addressing this need. However, the existing literature has suffered from various issues that have severely weakened the scientific support that these studies could potentially provide for sound policy making. This paper provides a thorough and critical review of this rapidly emerging literature and identifies important research directions that need the most attention from scholars.