Global sustainability of carbon shadow pricing: The distance between observed and optimal abatement costs

As an important environmental assessment indicator, carbon abatement costs may vary across countries in terms of their development stages. This abatement cost can be measured by a shadow pricing approach using parametric or nonparametric methods. The carbon shadow price (CSP) might be usually understood as the opportunity cost of how much we should give up gross domestic products (GDP) to reduce one unit of carbon emissions. Most research focuses on evaluating the observed value of the carbon shadow price at an individual level, while the optimal value at an aggregate level is often ignored. The novelty of this paper is to propose a nonparametric approach for estimating the optimal carbon shadow price by maximizing the possibility of GDP expansion and carbon reduction simultaneously. We investigate the distance between observed and optimal carbon shadow prices among 152 countries all over the world during the sample period 1991–2019. The result shows that an improving carbon shadow price is observed globally. However, a significant disparity in the distance between observed and optimal carbon shadow prices is detected among countries. Furthermore, we examine the impacts of prevalent climate protocols on global environmental performance. Finally, policy implications for improving sustainable development and achieving optimal carbon shadow prices are provided.