CO2 shadow prices and the social cost of carbon

The study analyses the application of shadow CO2 prices in the G7 countries, except for Germany. For four countries – the United Kingdom, the United States (US), Canada, and France – meaningful examples of the application of CO2 shadow prices could be found. The study consists of factsheets for those countries. We discuss the regulatory history of each country; when were shadow prices enacted and relevant major changes. The current use is presented, including examples and – as far as it exists – scientific evidence for its effectiveness and impact. We discuss the approach for setting shadow CO2 prices – how targets are set, which modelling approach is used, and any relevant changes. Carbon values may be based on different approaches, but they always require the use of integrated assessment models. The US and Canada use the “social cost of carbon” i.e., estimates of the damage caused by emissions released into the atmosphere. Key inputs include socio-economic parameters / climate sensitivities / damage functions, and importantly the discount rate. The UK and France use marginal abatement costs that are consistent with a given emissions reduction target. Key inputs include the setting of a target and the development of a marginal abatement cost curve. A table is presented with the current estimations or set values of shadow CO2 prices in 2020, 2030, 2040, and 2050.