4. Conclusions and policy implications
Global warming and carbon pricing were the core issues of the last conference of the parties (COP 21) in Paris in 2015. Most states support the idea of carbon pricing to bring down emissions or at least control the CO2 expansion. A remaining question is the best way that governments can price carbon emissions. Currently, two main types of mechanism can be used: emissions-trading systems, which essentially fix the quota for emissions, leading to an ex-post market price for carbon, and taxes that directly set a price on carbon without constraining ex-ante the volume of emissions. At the moment, given the difficulty of fixing a carbon price, governments favor the first option.
Our analysis is more in line with the second mechanism and could help policy makers to evaluate levels of carbon pricing among different countries and to fix relevant carbon taxes. Through a non-parametric robust frontier, we estimate worldwide carbon shadow prices, incorporating desirable and undesirable outputs, for a sample of 119 countries. According to our empirical results, the carbon shadow price is increasing at a rate of 2.24% per annum, reaching 2845 US dollar per ton in 2011, which suggests that carbon abatement may become increasingly challenging at the worldwide level. However, significant disparities are observed among groups of countries and over time. A significant sigma convergence of carbon shadow prices is observed among regions between 1990 and 2007, while a divergence is detected over the period 2007–2011. This means that economic fluctuations and shocks may affect carbon shadow prices. Furthermore, carbon shadow price may be also interpreted as marginal abatement cost which could be used as a criterion for carbon dioxide emissions allocation among countries or regions (Zhou and Wang, 2016). In the further work, our research may help to discover this abatement cost criterion for sharing emission reduction burdens.
