Shadow prices of direct and overall carbon emissions in China's construction industry: A parametric directional distance function-based sensitive estimation

Construction industry, together with building materials industries supplying it, is one of China's largest emitters of CO₂. Structural change in construction industry has been promoted to mitigate CO₂. This paper estimates CO₂ shadow price of construction industry and its supporting materials industries in China so as to help them to mitigate CO₂ cost-effectively. A parametric directional distance function model, taking into account all possible directional vectors, is applied to address issues regarding arbitrary selection of direction that will affect estimation of shadow price. Results show that there is larger potential for CO₂ reduction in supporting material industries than in construction industry itself and shadow price of overall CO₂ is much lower than that of direct CO₂. The existence of enlarging heterogeneity in shadow prices among different regions provides strong support for introducing a national carbon trading market, thereby helping construction industry and building materials industries to reduce their abatement costs.