An empirical study on the shadow price of carbon dioxide emissions in China’s industry

Abstract

The shadow price of CO2 emissions plays a fundamental role in evaluating CO2 abatement costs. In this paper, a directional environment production frontier function model based on the nonparametric method is established to measure the distance between actual production points and the effective production frontier surface, with which CO2 shadow prices of 36 industrial sectors in China are estimated during 2006-2015. The empirical studies show that: (1) there is a negative relationship between shadow price and carbon intensity. The average shadow price of the top five sectors with the highest carbon intensity is 373.92 Yuan/t, while the top five sectors with the lowest carbon intensity are 50254.54 Yuan/t. CO2 abatement potential differs significantly across sectors, so the sector-specific environmental policies should be concerned; (2) shadow prices of CO2 have an upward tendency with time in all sectors, and they rise with a greater speed in the low carbon intensity sectors than in the high ones, which implies that emissions reduction is accompanied by increasing economic sacrifices; (3) there is an additional 3.07% growth of industrial value owing to the CO2 emissions increasing by 6.39% every year; and (4) two typical sectors are selected to further analyze their CO2 abatement characteristics, respectively.