Carbon Emissions Abatement Cost in China: Provincial Panel Data Analysis

This paper employs the quadratic directional output distance function to derive shadow prices of China's aggregate carbon emissions at the province level between 1997 and 2010. The empirical results indicate that the national weighted average shadow price presents an "N-shape" curve across the sample period, experiencing the initial phase of growth followed by a phase of deterioration, and then a further increase. This change trend implies that the cost of carbon emissions reduction is increasing. In addition, the shadow price varies significantly across provinces, which means that China should uphold the principal of "common but differentiated responsibilities" in regional carbon emissions reduction. Generally, the shadow price of the east provinces with high economic development is markedly higher than that of the west provinces with low economic development. The OLS regression results indicate that the shadow price positively connected with the regional economic development levels. Moreover, an inflection point exists in the relation curve between the shadow price and GDP per capita, that is, the increase rate of the shadow price becomes small when the GDP per capita is less than 18.1 thousand Yuan, while it becomes large when the GDP per capita surpasses 18.1 thousand Yuan. With the economic growth, the cost of carbon emissions reduction would be significantly increased. The empirical results can provide more insight for policymakers.