Scandinavian Working Papers in Economics

Working Papers,
Swedish National Road & Transport Research Institute (VTI)

No 2010:4: Carbon Emission Values in Cost Benefit Analyses

Svante Mandell ()
Additional contact information
Svante Mandell: vti – Swedish National Road and Transport Research Institute, Postal: Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden

Abstract: New infrastructure projects may affect CO2 emissions and, thus, cost benefit analyses for these projects require a value to apply for CO2. The value may be based on the marginal social cost associated with emissions or on the shadow price resulting from present and future policies geared towards CO2 emissions. In the present paper it is argued that the social cost approach should be seen as preceding the shadow price approach. Both are thus necessary, but for cost benefit analysis of infrastructure projects we argue for the shadow price approach as the primary tool. There is a series of complications involved when applying this principle in practice. Several of these are discussed in the paper, including non-marginal projects that affect permit prices, non-transparent permit markets, different instruments capturing different aspects of a CO2-value, multiple policies present simultaneously etc.

Keywords: Climate change; policy; cost-benefit analysis; carbon value

JEL-codes: H54; Q51; R42

20 pages, January 20, 2010

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