Shadow Price of Carbon (SPC)

[biffvernon]

Our Government seems to be developing a core strategy around this paper:
The Social Cost Of Carbon And The Shadow Price Of Carbon: What They Are, And How To Use Them In Economic Appraisal In The UK
Economics Group, Defra December 2007

It was the front page story in yesterday's Grauniad
and there are summaries from DEFRA

Consultation open till 19th March '08.

[Smithy]

This actually all looks quite promising assuming it really does get integrated into policy decisions...

Our Government seems to be developing a core strategy around this paper:
The Social Cost Of Carbon And The Shadow Price Of Carbon: What They Are, And How To Use Them In Economic Appraisal In The UK
Economics Group, Defra December 2007

Salient quotes:

SCC ... is simply a measure of our willingness to pay for carbon abatement

What is the social cost of carbon?
The social cost of carbon (SCC) measures the full global cost today of an incremental unit of carbon (or equivalent amount of other greenhouse gases) emitted now, summing the full global cost of the damage it imposes over the whole of its time in the atmosphere.

the SPC is based on the SCC for a given stabilisation goal, but can be adjusted

The Stern Review calculates that this implies a social cost of carbon (SCC) of $30/tCO2e in 2000, equivalent to ?19/tCO2e. This is therefore the number we believe should be adopted as the basis for a shadow price of carbon (SPC) profile for use in policy and investment appraisals across government in the UK. Using the uprating conventions set out below, we adopt an SPC in 2007 of ?25/tCO2e. The SPC applied in appraisals should be specific to the year in which carbon is emitted (or abated).

In conclusion, available evidence provides some indication that the SPC is broadly in line with meeting the 450ppm goal providing full international abatement options can be exploited, although the figure will depend on the degree of abatement required to take place in the UK.

It was the front page story in yesterday's Grauniad
and there are summaries from DEFRA

Consultation open till 19th March '08.

[clv101]

So what does ?25/tCO2e actually mean? In the UK the electricity generation mix produces some 0.46 kg of CO2 per kWh on average. So that?s one tonne for every 2174 kWh or an extra 1.2 pence per KWh. Coal is 0.89 kg and gas is 0.36 kg leading to costs of 2.2p and 0.9p per kWh respectively. For base load operation this compares to about 2.5p/kWh for coal and 2.2p/kWh for gas-fired CCGT generation costs. So roughly speaking, ?25/tCO2e doubles the generating costs of coal fired electricity and increases gas by around 40%. Also remember that these generation costs are only around a third of the retail price so retail prices would increase by around a third for coal and a little over 10% for gas. This could have the effect of replacing coal burn with gas however in reality the situation is more likely to be dominated by fuel costs/availability than carbon costs. The dynamic range of the gas wholesale price is large, there are questions over supply and as such new coal infrastructure will be built, despite carbon costs.