The UK's Department of the Environment and Climate Change (DECC) has published details of a methodology that it proposes government departments should use to evaluate the future price of carbon dioxide and other greenhouse gas emissions. The methodology has been changed from one that attempted to value the so-called "social cost of carbon" (SCC) to one based on estimates of what abatement costs would be required to meet specific emission reduction targets. Abatement costs have been developed for emissions in sectors covered by trading systems (e.g. EU ETS) and those in sectors not covered by trading schemes.
Details of the report are located on the DECC's UK low carbon transition page. Although a complex document to read, it does provide a practical set of reference prices against which future projects can be evaluated.
Projected Carbon Prices - €/tonne CO2e
Source : DECC - Carbon Valuation in UK Policy Approval: A Revised Approach, July 2009
with abatement cost data from McKinsey - CCS Assessing the Economics, October 2008
Assumed price conversion €1 = £0.862
Prices for traded and non-traded emissions are predicted to converge by 2030 and then to rise to something like £200 (€230) a tonne by 2050. One issue appears to be that the authors of the report have determined prices need only rise slowly over the coming decade, when it can be argued that a higher price is required now to encourage investment in new low carbon technologies - see for example the McKinsey report (location sited above) that assesses the potential abatement costs for carbon capture and storage. As shown in the graph, these would require some form of government subsidy since anticipated costs would be greater than the predicted price of CO2 on a traded emissions market.
The issue of how corporate entities and companies might utilise such values in their investment decision making processes is not addressed.
