Carbon Emissions Abatement (CEA) allocation and compensation schemes based on DEA

As environment constraints on economic growth are strengthening, Carbon Emissions Abatement (CEA) allocation becomes a significant issue that draws academia׳s attention. In the literature, the Data Envelopment Analysis (DEA) technique has been applied to obtain CEA allocation with centralized models. Nevertheless, a centralized allocation plan suffers from an implementation difficulty in persuading decision-making units (DMUs) into an agreement. In this paper, we propose a new two-step method to mitigate this side effect. In the first step, we provide improved DEA-based centralized allocation models under the assumptions of constant returns-to-scale (CRS) and variable returns-to-scale (VRS) respectively and in the second step, two compensation schemes are developed for centralized allocation plans. An empirical application to the countries in Organization for Economic Co-operation and Development (OECD) is presented to elaborate the main idea.