Estimating shadow price of CO2 emissions in China’s construction industry under policy regulations

Abstract

The marginal abatement cost (MAC) of CO₂ emissions is one of the most critical indicators used to assess energy conservation and emission reduction. Although extensively measured, few studies have incorporated the influence of policy constraints when evaluating MAC. To address this gap, this paper proposes a nonparametric directional distance function approach under policy regulations to estimate the CO₂ shadow price in the construction industry across 30 Chinese provinces from 2010 to 2017. Based on this enhanced method, four key findings emerge: ① the annual CO₂ shadow price exhibits an overall upward trend during the observation period; ② regional shadow prices display marked variation across provinces; ③ regional heterogeneity in shadow prices has increased steadily over time; and ④ both urbanization rate and energy consumption per unit of gross domestic product are significantly negatively correlated with the CO₂ shadow price. Finally, the paper offers several policy recommendations for CO₂ emissions reduction in the Chinese construction industry at the national, industry, and enterprise levels.