Climate change: valuing emissions
*Updated* guidance on the Shadow Price of Carbon
Defra has published full revised guidance on how to value greenhouse gas emissions in government appraisals. This is for use in all policy and project appraisals across government with significant effects on carbon emissions. The guidance adopts the concept of the Shadow Price of Carbon (SPC) as the basis for incorporating carbon emissions in cost-benefit analysis and impact assessments. This replaces all guidance referring to the Social Cost of Carbon (SCC), and is an update of the interim guidance published in August 2007. This guidance is accompanied by a main background paper on the new SPC:
- Background paper (PDF 80 KB)
Peer reviews
Six peer reviews by leading academic experts commenting on an earlier draft of the paper were submitted by the following academic experts. Defra would like to thank the reviewers for their involvement in this process. Please follow the links below to access the individual peer review papers:
- Alex Bowen (PDF 30 KB)
- Simon Dietz (PDF 100 KB)
- Paul Ekins (PDF 50 KB)
- Dieter Helm (PDF 30 KB)
- David Newbery (PDF 100 KB)
- Paul Watkiss (PDF 50 KB)
(Please note that the copyright for these reviews resides with the authors)
A response (PDF 50 KB) to these peer review comments from government economists is also available.
Schedule and guidance
The new SPC schedule, and guidance on how to use it, can be viewed on the subsequent guidance pages or for your convenience is also available in PDF format (50 KB). This guidance should be used in conjunction with the Treasury’s main guidance on economic appraisal in the Green Book ‘Appraisal and Evaluation in Central Government’.
We use the shadow price of carbon to value the increase or decrease in emissions of greenhouse gas emissions resulting from a proposed policy. Put simply, the SPC captures the damage costs of climate change caused by each additional tonne of greenhouse gas emitted, expressed as carbon dioxide equivalent (CO2e) for ease of comparison.
The new guidance brings the value of carbon included in appraisals into line with the Stern Review’s assessment of the social cost of carbon. The SPC is different from the previously used social cost of carbon (SCC) in that it takes more account of uncertainty and is based on a stabilisation trajectory. Please see the main paper for further details.
For information on the social cost of carbon (note: not to be used in policy appraisals anymore) see our SCC webpages.
Climate change policy cost-effectiveness indicator
(PSA delivery Agreement 27 – indicator 6)
As part of our PSA commitments, government is introducing an indicator to reflect our commitment of achieving emission reductions at least cost. The indicator will show ‘the proportion of emissions reductions from new policies below the Shadow Price of Carbon’ (See: Measurement Annex - Indicator 6 (PDF on HM Treasury website)).
- Climate change policy cost-effectiveness indicator (PDF 100 KB)
New climate change policy (Impact Assessments from 1 April 2008) will have to report to this indicator unless emission reductions are below the de minimis threshold. The guidance in the document sets out:
- who needs to report to the cost-effectiveness indicator;
- how to report to it;
- where to report your findings; and
- where to go for further information and/or questions
Page last modified: 28 March 2008
Page published: 01 December, 2005