Carbon Productivity and Carbon Shadow Price in China’s Power Industry: An Endogenous Directional Distance Function Approach

In China’s electricity generation process, fighting against the rising CO2 emissions becomes increasingly an urgent and great challenge. Based on an endogenously non-parametric directional distance function (DDF), this paper investigates the carbon productivity changes (i.e., pure efficiency change, scale efficiency change and best practice gap change) and shadow prices of CO2 emissions in the electric power industry sector of China’s 30 provinces from 2011 to 2015. The main findings of carbon productivity evaluation include: (i) only China’s western area experiences carbon productivity growth during the entire study period; (ii) the primary driving force for carbon productivity increase can be attributed to technical progress both among areas and among regions, while the lack of catch-up effect drags carbon productivity growth. Moreover, the main findings of shadow prices estimation include: (i) in general, the CO2 emissions abatement cost of China’s power industry sector increases during the 12th Five Year Plan period (2011–2015) with a range of 494–965 yuan/ton of CO2; (ii) although the beta convergence shows the negative correlation between initial shadow price and its growth rate, there is significant shadow prices heterogeneity among areas and regions, which provides a necessity and possibility in emission abatement cost savings through the regional carbon emissions trading in power industry sector of China.