Derivation of Shadow Price for CO2 Gas Emission Using Distance Function Approach

The purpose of this study is to estimate the shadow price of CO2 gas emission utilizing the output distance function including good products (GDP) and bad products (CO2). At the first, output oriented technical efficiency under the two assumptions of weak and strong disposability of CO2 and Environmental Efficiency Index are estimated using the Iran’s economic data. Shadow price of CO2 gas emission is derived employing a Translog distance function. Results show that the average of technical efficiency under the two assumptions of strong and weak disposability and environmental efficiency are equal to 1.0743, 1.0910 and 0.99267, respectively. Average shadow price of CO2 emission is 0.10933 million US dollars per thousand tons based on the constant price of the year 2000.