A BOOTSTRAP ASSESSMENT OF THE SHADOW PRICES OF CO2 FOR THE INDUSTRIAL SECTOR IN CHINA’S KEY CITIES

Abstract

This study constructs a modified assessment model based on the bootstrap method to estimate the CO2 shadow prices for 35 typical cities’ industrial sectors in China from 2005 to 2018. Based on data from China’s seven pilot regional carbon markets, we evaluate the current CO2 trading price distortions. The empirical results indicate that during the study period, the average CO2 shadow price for the target cities is 1915.86 yuan per tonne, decreasing to 1880.57 yuan per tonne when using the bootstrap method for bias correction. The overall trends of CO2 shadow prices in most key cities are increasing given the strengthening of environmental regulations following the 11th Five-Year Plan. In addition, compared with the CO2 shadow prices in this paper, carbon trading prices in pilot cities present significantly negative distortions, which may fail to reflect the real opportunity cost of carbon abatement. Based on the findings of this study, several policy recommendations are proposed.