A By-production Approach to Studying Environment-constrained Technical and Allocative Inefficiencies and Measuring Marginal Abatement Costs: the Case of China's Provinces

Abstract

This thesis employs the by-production approach to modelling pollution generating technologies to investigate production and environmental efficiencies, design consumption increasing and emission non-increasing input policy reforms, and derive a measure of marginal abatement costs in the case of China. The second chapter introduces by-production approach to modelling the pollution generating technologies. It decomposes a general pollution generating technology as classical intended production technology and nature’s residual-generation mechanism. In this chapter, some production and environmental efficiency indexes will be extended and applied under by-production approach to study China’s regional technical efficiency incorporated emission generation. According to our estimation results, some reasons analysis and policy implementation suggestions are given. The third chapter co-authored with Professor Sushama Murty proposes a model that gives a key role to the energy sector, and gives a theoretical characterisation for the existence of feasible, consumption-increasing, and emission-non increasing input policy reforms at the status-quo of a national or a sub-national economic unit. A methodology is developed to empirically test for the existence of such efficiency-improving reforms. Formulae to compute the optimal efficiency-increasing reform and a measure of marginal abatement cost (MAC) based on local policy reforms using data available at the status-quo are derived. The fourth chapter co-authored with Professor Sushama Murty implements the methodology developed in the third chapter to test the existence and to study the structure of efficiency-improving reforms using data on thirty provinces in China. A new class of limitational variable elasticity of substitution (LVES) production functions for specifying technologies of the energy-using and energy-generating sectors is introduced and two such production functions are estimated along with the conventional Cobb Douglas and CES production functions. MACs and the optimal efficiency-improving reforms are found to be sensitive to the choice of the production functions employed. There is a huge variation in MACs across provinces. The optimal efficiency-improving reform encourages a substitution from coal-fired electricity generation to gas-fired electricity and renewable energy generation for all provinces. The fifth chapter reviews China’s regional variations in electricity generation, primary energy usage, and forest cover. To better understand the China’s carbon emission control policies, we also briefly introduce the carbon emission scheme implementation. Based on these information, we incorporate the efficiency-improving reforms and MACs estimated in the fourth chapter to analyse the direction of input resources reallocation and give further recommendations for each province