Forward-looking assessment of the GHG abatement cost: Application to China

Abstract

Evaluation of abatement costs is critical in setting reduction goals and devising climate policy. However, reliable forward-looking assessment of the short-term effects of climate policy remains a major challenge. Using panel data of 30 Chinese provinces during 1997–2015, we first estimate the marginal CO2 abatement costs using a novel data-driven approach, convex quantile regression. Based on the marginal abatement cost estimates and China's plans regarding carbon intensity reduction and economic growth, we present a forward-looking assessment of the abatement costs for Chinese provinces for 2016–2020. Our main finding is that all the Chinese provinces have a negative abatement cost, which means these provinces can benefit from an increase in the absolute level of CO2 emissions despite the constraint on carbon intensity. The magnitudes of economic benefits exhibit a significant regional disparity because some provinces can increase more CO2 emissions than others. However, there is still costly carbon intensity abatement relative to a counterfactual where the provinces meet their economic growth targets but in the absence of the intensity reduction constraints. Policy implications have been proposed to enhance the efficiency and fairness of climate policy in China.