The U.K. Prime Minister, Gordon Brown, has ordered UK ministers to factor in climate change consequences for all policy and financial decisions related to transportation, construction, energy, housing and planning.
To do this, carbon dioxide (CO2) – a major contributor to global warming – has been assigned a “shadow price” that government officials will have to consider. This theoretical cost of carbon will, of course, drive up the price tag of projects like new coal plants and new roads. And that’s the point: Assigning a cost to carbon will increase the costs of traditional, dirty projects (and show a truer value in a world more and more likely to assign a cost to CO2) and make cleaner, more efficient projects more attractive and less expensive.
Government economists have set the price at £25.50 per carbon tonne for 2007. That cost will rise each year until it reaches £59.60 per tonne in 2050. The price was set at a level by which the government can meet its target of stabilizing CO2 emissions at 450-550 parts per million, which was recommended by a review for the Treasury. The price is intended to reflect the global costs of carbon’s damage in the atmosphere (more on how and why the price of carbon was determined can be found here).
Climate change minister Phil Woolas explained how this price on carbon would affect lawmakers’ decisions:
If for instance a new power station is due to cost £1bn, but it will add £200m worth of carbon emissions, we will decide that the cost of the power station is £1.2bn, even though its cash price is £1bn. We are creating a new currency. This is far bigger than people realize. It is intellectually thought-through and very tough. Gordon Brown may not ride a bike, but by god he is showing a lead.
Every major policy and investment decision will be monitored in 2008 to make sure that policymakers are actually factoring this carbon price into their decisions. Equivalent values will also be used for other global warming pollutants.
The Social Cost of Carbon and the Shadow Price of Carbon
Just to clarify – the shadow price of carbon applies to all greenhouse gas emissions – not just carbon. Equivalent values are calculated for other gases – methane, CFCs, NOx etc – reflecting their relative impact on warming. These are used in assessments of any UK policy which has a significnant impact on emissions.