Facing challenging and legally binding greenhouse gas emission reduction targets, it is imperative that the assessment of public investment projects include an appropriate valuation of the cost that society will bear in dealing with the increased greenhouse gas emissions a project might give rise to.
Under the National Mitigation Plan, the Department of Public Expenditure and Reform committed to “undertake a review of guidance on public expenditure appraisal and evaluation to ensure their suitability to capturing key costs and benefits of climate measures”. This review has now been published for public consultation (6 November).
The review concluded that the model currently in use for pricing carbon in the Public Spending Code is outdated. A new model has been proposed that values future greenhouse gas emissions according to a shadow price of carbon that is based on the estimated marginal cost that will be faced by society in achieving Ireland’s legally binding 2030 greenhouse gas emissions target.
In practical terms, this means a new shadow price of carbon for non-ETS emissions of €32 per tonne in 2020, rising by €6.80 a year to reach €100 per tonne by 2030. Beyond 2030, it is proposed that the shadow price of carbon will simply rise linearly by 5% a year. This means that the shadow price of carbon rises to €128 for 2035, €163 for 2040, €208 for 2045 and €265 for 2050.
In 2019, the price that will be applied to non-ETS emissions is the current value of the carbon tax - €20 per tonne of greenhouse gas emissions.
For any elements of projects that will effect emissions in sectors of the economy covered by the EU Emissions Trading Scheme (ETS), the shadow price of carbon will continue to be based on the estimated future value of allowances in the ETS. These values will be calculated according to the average of observed market values from public exchanges. At the time of the consultation papers publication, the projected value of an ETS allowance for delivery in March 2019 was €17.37.
The closing date for this consultation paper is 14th December 2018. Subject to the views received in this process, it is intended that the revised Public Spending Code will apply to all cost benefit analyses conducted from early 2019 onwards.
