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Transport accounts for nearly a quarter of carbon dioxide emissions from fuel combustion. The way these emissions are considered in economic appraisals of transport policies and investments in the transport sector has a significant impact on climate policy and trade-offs made between mitigation of climate change and other policy objectives. Inappropriate valuation of carbon emissions will affect the level of mitigation achieved and is likely to undermine social welfare through an inappropriate allocation of resources. There are three inter-related issues around incorporation of climate change effects in transport appraisals. They are the valuation of carbon dioxide, the treatment of uncertainty and the approach used to discount future costs and benefits.
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This chapter considers the alternative approaches to estimating the social cost of CO2 emissions that can be applied in cost benefit analysis (CBA). The first sections describe the analytical approaches, and how values can vary through time. The final section describes how selected OECD countries value carbon in their jurisdiction.
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