7. 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.