Evaluation of carbon shadow price within a non-parametric meta-frontier framework: The case of OECD, ASEAN and BRICS

Abstract

Abstract Unintended outputs, as non-market goods, may have no exchange value and require shadow pricing to investigate the abatement costs. Unlike previous research, which assumes homogeneous production technology for decision-making units in the shadow price analysis, this paper considers group and global production frontiers. The ratio of group to global shadow prices is derived to indicate the position with respect to the tangent point (i.e., equal shadow prices) of the group and global technologies. This departs from the conventional technology gap approach. The nonparametric meta-frontier approach is used to evaluate the shadow price of carbon emission for several groups of countries (OECD, ASEAN, BRICS) that are likely to face homogenous technologies. The results show that carbon shadow prices for the countries differ across group and non-meta technologies. Therefore, the traditional approach towards shadow pricing may render a biased economic interpretation. This paper also compares the inefficiency scores with and without considering carbon emissions in countries. Therefore, the role of the carbon emission is assessed from different perspectives.