Dynamics of pollutants’ shadow price and its driving forces: An analysis on China’s two major pollutants at provincial level

Abstract The rapid change in environmental protection in China raises our interests in evaluating the shadow price of sulfur dioxide (SO2) and chemical oxygen demand (COD), and in developing a framework for analyzing the association between pollutants’ shadow prices and their driving forces: technological change, scale efficiency change, and pure efficiency change. The imbalance across the provinces also draws our attention to a provincial-level analysis. The results show that the national average shadow prices of SO2 and COD showed a substantial upward trend during 2001 and 2015, with the mean value being $2,582.67/ton and $1,639.79/ton, respectively. In most eastern provinces, the shadow prices of both pollutants were relatively higher than those in the central and western regions. For the eastern region, technological change, scale efficiency change, and pure efficiency change that brought about by a variety of measures impacted the social marginal abatement cost of SO2 significantly. For the western region, these three factors significantly impacted the marginal abatement cost of COD. For the central region, a change in scale efficiency brought about by the adjustment of production scale and/or industrial structure significantly impacted the marginal abatement cost of SO2, and the other two factors significantly impacted the marginal abatement cost of COD. The results suggest the importance of establishing a regionally differentiated policy framework, emphasizing on the measures that previously have not impacted the social marginal abatement cost, and setting up better coordination of synergies between multiple pollutants.