Estimating the Marginal Abatement Cost Curve of CO2 Emissions in China: Provincial Panel Data Analysis

- Marginal Abatement Cost Curve of CO2 emissions in China is constructed.
- The optimal specification is identified to fit the MAC-carbon intensity pairs.
- An application of China's carbon intensity reduction goal is illustrated.

This paper estimates the Marginal Abatement Cost Curve (MACC) of CO2 emissions in China based on a provincial panel for the period of 2001-2010. The provincial marginal abatement cost (MAC) of CO2 emissions is estimated using a parameterized directional output distance function. Four types of model specifications are applied to fit the MAC-carbon intensity pairs. The optimal specification controlling for various covariates is identified econometrically. A scenario simulation of China's 40-45% carbon intensity reduction based on our MACC is illustrated. Our simulation results show that China would incur a 559-623 Yuan/t (roughly 51-57%) increase in marginal abatement cost to achieve a corresponding 40-45% reduction in carbon intensity compared to its 2005 level.