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Friends of the Earth: The Price of Carbon

What it should be and why?

Speakers: Paul Ekins, Sam Fankhauser, and Simeon Thornton
July 8, 2008

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Carbon valuation for appraisal is controversial. The argument for its use is that there are often real choices between competing objectives – explicit pricing in appraisal helps decision making by putting a price on something currently without one. However, which method to use for setting the price is controversial, and in addition there are arguments that the difficulties with each of the methods are so substantial that a different approach is required.

The figure the Government uses is based on the Social Cost of Carbon (“SCC” ‐ broadly, the societal cost of a tonne of emissions) set out in the Stern Review, assuming the world is on course to meet a 550 ppmv CO2e target concentration. This value is currently £26.5 tCO2e, and is called the “Shadow Price of Carbon” (SPC).

The current carbon price approach has come in for some criticism, and is being reviewed by Government. An extra factor for this review will be the need to ensure compatibility with the new approach to carbon budgeting set out in the Climate Change Bill. One concern, for example, is that if high‐carbon and very‐long lived infrastructure is approved via the current carbon pricing approach, this locks the UK into a high carbon trajectory when in future decades carbon budgets

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