Abstract
In recent years, climate change issues have attracted increased attention to China, as the most rapid sources of CO2 emissions due to the dramatically increasing of economic outputs. The iron and steel industry in China is regarded as one of extreme cases where the physical amount of steel production has dramatically grown since 2000. First, this study evaluates the regional disparity of industry's production efficiencies considering CO2 emissions with the Directional Distance Function model in the Chinese iron and steel sector in 2003. Then, we estimate marginal abatement costs by using the production efficiency score. Based on these results, the optimal allocation of the budget for CO2 emission reductions are performed. The results show that many provinces in coastal areas are efficient in producing steel, while the inland provinces are far behind. If all provinces reach the efficiency frontiers of production, Chinese iron and steel sector can potentially reduce 180 million tons of CO2 emissions. The optimal allocation strategy for CO2 emissions reduction is the most effective in the range of budget scale between 50 billion yuan and 70 billion yuan.
