10 Centre for Economics and Business Research here. This ensures that the report can be used as an effective means of understanding whether the decision is ‘good’ or not, on the basis of the government’s own principles and analytical approach. Carbon values represent a monetary value that society places on one tonne of carbon dioxide equivalent (£/tCO2e). The government uses these values to estimate a monetary value of the greenhouse gas impact of a policy or proposal. The fundamental purpose of assigning a value to the GHG emissions impacts that arise from potential government policies is to allow for an objective and consistent method of determining whether such policies should be implemented. Carbon values are used in the framework of broader cost-benefit analysis to assess whether, taking into account all relevant costs and benefits (including assumed impacts on climate change and the environment), a particular policy may be expected to improve or reduce the overall welfare of society. As such, both Carbon and NOx (air quality) values capture the government’s view of the value of emissions impacts such as associated health impacts. Valuing emissions impacts explicitly when making policy decisions therefore helps the government to: • ensure the climate impacts of policies are fully accounted for • ensure consistency in decision making across policies • improve transparency and scrutiny of decision making The previous approach used within government to value carbon in policy appraisal was the ‘Shadow Price of Carbon’ approach. This was based on estimates of the lifetime damage costs associated with greenhouse gas emissions drawn from the Stern Review7. The current approach, in contrast, is, based on estimates of the abatement costs that will need to be incurred to meet specific emissions reduction targets. The current approach is focused on ensuring that valuations are consistent with the UK’s domestic and international climate targets. In contrast, the previous approach measured social costs directly, rather than focusing on consistency with government targets. The valuations of the previous, more direct, approach tended to be a much lower. For example, in January 2002, a Government Economic Service working paper entitled ‘Estimating the social cost of carbon emissions’ suggested a value of £19/tCO2 within a range of £10 to £38/tCO28. This cost was set to rise at a rate of £0.27/tCO2 per year to reflect the increasing marginal cost of emissions. Accounting for inflation, this means that the values under the current approach are many multiples higher; with this been driven by the need to ensure consistency with climate targets. This also implies that the current, much higher, valuations of environmental and health impacts are derived from the importance of the targets themselves rather being direct measures of health or environmental outcomes. 7 HM Treasury Link 8 UK Government Link
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