Analysis on shadow price and abatement potential of carbon dioxide in China's provincial industrial sectors

CO2 emission performance evaluation is crucial to make abatement policies. Knowledge about the potential and costs of CO2 reduction could provide information guides for policymakers and help them implement targeted measures. However, relevant studies are rarely subdivided into detailed industrial sectors, and results are lack of inter-industry comparisons. To fill this gap, this study estimates provincial technical inefficiency, abatement potential, and shadow price of CO2 from fuel combustion in China's 25 industries in 2001-2017. Results show that China's industry could ideally reduce CO2 emissions by a further 22.01-33.27%, averaging 1645.96 MtCO(2). Technical efficiency, abatement potential, and cost vary across provinces and industries and should therefore be fully considered when designing emission reduction targets and control policies. Provinces and industries with low technical efficiency, large-scale emissions, great abatement potential and low shadow price are the key to emission reduction. We thus identify key provinces and industries that need to take on more abatement responsibility. Those findings are of great significance to the formulation of carbon reduction targets and the implementation of abatement policies, and prove the feasibility of China's trans-regional carbon trading. It is suggested to prioritize key industries into the trading system and further promote inter-provincial cooperation through carbon trading.