Reference no: EM133893597

Question

In a CBA for a new mine proposal, the analyst describes the following for the social cost of carbon:

Greenhouse Gas Generation - the mine would generate in the order of 1.4 million tonnes (Mt) of greenhouse gas emissions from mining and transport of product coal by rail to the port. To place an economic value on carbon dioxide equivalent (CO2-e) emissions, a shadow price of carbon is required that reflects its social costs. The social cost of carbon is the present value of additional economic damages now and in the future caused by an additional tonne of carbon emissions. There is great uncertainty around the social cost of carbon with a wide range of estimated damage costs reported in the literature. An alternative method to trying to estimate the damage costs of carbon dioxide is to examine the price of carbon credits. Again, however, there is a wide range of permit prices and this method has flaws. For this analysis a shadow price of carbon of AUS$30/t CO2-e was used, with sensitivity testing from AUS$8/t CO2-e to AUS$40/t CO2-e.

1. Search the internet for the social cost of carbon and explain whether the analyst has used reasonable estimates of the social cost of carbon in their benefit transfer method.

2. Explain how the social cost of carbon is calculated.

3. Why does the analyst say that a method using carbon credit prices is flawed?