Provincial emission reduction quotas and costs in China under the carbon peak target: Efficiency first or fairness first?

This paper investigates China's pathway toward its carbon peak target by establishing a fair yet efficient system for provincial carbon-quota allocation. Using a cost-benefit framework and provincial data from 2000 to 2018, we estimate carbon dioxide (CO₂) shadow prices via a directional distance function and construct marginal abatement cost curves (MACCs) to assess the economic implications of alternative allocation schemes. We further estimate the MACCs of sulfur dioxide (SO₂) and nitrogen oxides (NO_x) to quantify co-benefits that can offset low-carbon transition costs. Results indicate that developed provinces tend to favor efficiency-oriented allocation, while less developed provinces prefer equity-oriented allocation. A comprehensive rule derived from the entropy method achieves a practical balance between the two. Although not cost-minimizing, this approach yields the most equitable and politically feasible outcome. Carbon reduction policies also bring notable co-benefits: joint reductions in SO₂ and NO_x generate social co-benefits of roughly RMB 400 billion, significantly easing the overall burden of achieving China's carbon peak target.