BEIS sets new much higher prices for the valuation of greenhouse gas (GHG) emissions in policy appraisal
The government (BEIS) sets the price it uses for the valuation of greenhouse gas (GHG) emissions in policy appraisal. This has been updated in September following a cross-government review during 2020 and 2021. Greenhouse gas emissions values (“carbon values”) are used across government for valuing impacts on emissions resulting from policy interventions. They represent a monetary value that society places on one tonne of carbon dioxide equivalent (£/tCO2e). They differ from carbon prices, which represent the observed price of carbon in a relevant market (such as the UK Emissions Trading Scheme). To reach net zero in 2050 and meet UK 5-yearly carbon budgets, there needs to be a realistic value on GHG, in order to reduce emissions. The price has now been set, for 2021, at £245 per tonne (central value) rising to £378 per tonne by 2050. Even that may be too low. The prices now are around £70. This will have significant implications for the forecast economic costs/benefits of future infrastructure, such as airport expansion projects. The claimed economic benefits will be lower, with the realistic carbon prices, than the current low levels. Airport expansion plans will need to be reassessed.
The new carbon values are based on a Marginal Abatement Cost (MAC) or “target-consistent” valuation approach. This involves setting the value of carbon at the level that is consistent with the level of marginal abatement costs required to reach the targets that the UK has adopted at a UK and international level. This is illustrated, in simplified form, below in Figure 1 which illustrates how a “target-consistent” carbon value would be set. From our understanding of emissions projections and abatement options, we can determine the effort level, A*, that is required in order to meet the UK’s targets. Reading across from the abatement curve produces the corresponding carbon value level.
Annex 1: Carbon values in £2020 prices per tonne of CO2
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Yday the government implemented a huge change to its carbon prices for appraisal. The 2022 price was lifted from £27 (traded) and £72 (non-traded) to £248 per tonne. There should be some major ramifications for climate action in the UK. Short thread: /1 pic.twitter.com/BDQwtnye2P
— Alex Chapman (@chappersmk) September 3, 2021
Alex Chapman, of New Economics Foundation (NEF) says:
Yday the government implemented a huge change to its carbon prices for appraisal. The 2022 price was lifted from £27 (traded) and £72 (non-traded) to £248 per tonne. There should be some major ramifications for climate action in the UK. Short thread: /1
This isn’t (yet) a price that will be charged to polluting businesses (but may well soon be). It’s a price used by decision makers when they weigh up the pros and cons of a project, and decide whether to give it gvt approval. /2
Critically, from the perspective of many communities around the UK fighting polluting infrastructure, BEIS state “It should be stressed that the carbon values discussed in this paper apply to all types of policy”. This means it includes planning policy. /3
Changing the price so dramatically is, unfortunately, a concession that a whole range of projects which have already been given approval, and have future carbon impacts, were assessed at the wrong price from a social welfare perspective. This is where it gets messy /4
For me, on an issue as critical as climate breakdown, if there are decisions which have been made (e.g. to build a new road), but the work has not yet begun. We should really be going back and having another look, running the numbers again. We’ve only got one planet /5
There’s also a whole raft of polluting projects currently in decision making processes. Roads, mines, airports etc. It is absolutely imperative that the new prices are taken into consideration. It would be crazy to burn the planet just because the information came in late.