How has China's low-carbon city pilot policy influenced its CO2 abatement costs? Analysis from the perspective of the shadow price

Abstract

Extant studies mainly focus on the emissions reduction effect of environmental regulations, ignoring their influences on the costs of reducing emissions. This study takes the low-carbon city (LCC) pilot project in China as a quasi-natural experiment and examines its impact on the marginal abatement cost (MAC) of CO2 emissions. Based on city-level data from 2003 to 2018, it first utilizes a dual model of non-linear programming to estimate the shadow price of CO2 emissions, which is applied to measure the MAC. Then, it employs the difference-in-differences (DID) approach to estimate the causal impact. The results suggest that the LCC project has increased the MAC of CO2 emissions of pilot cities by 5.27% through two opposite effects: (i) The green technology progress effect, which decreases the MAC; (ii) The emissions intensity effect, which increases the MAC. The results are robust after accounting for heterogeneous treatment effects, omitted variables, sample selection bias, potential outliers, and confounding factors. Besides, the heterogeneity analysis suggests that the LCC project has a greater impact on small and medium-sized cities and non-resource-based cities. The findings of this study provide a more thorough knowledge of the policy effects of the LCC project and demonstrate the importance of green technology progress in reducing CO2 emissions.