What is Shadow and Market Price?
Use a reading to introduce the topic of Shadow and Market Prices and to explain concepts such as Social Cost of Carbon (SCC), Shadow Price of Carbon (SPC), and Marginal Abatement Cost (MAC) in the context of internal carbon pricing in the UK.
- Use the reading, 'The Social Cost of Carbon and the Shadow Price of Carbon: what they are, and how to use them in economic appraisal in the UK' by Richard Price and Simeon Thornton and Stephen Nelson, Economics Group, Department for Environment, Food & Rural Affairs (Defra), London, to understand the concepts of shadow prices and market prices and to establish the link between them.
- Use this paper to understand the need for climate informed policies in the economic assessment of a country.
- Given its significance in greenhouse gas emissions, use carbon as an example to discuss the social costs of carbon and its shadow price in internal carbon pricing.
- Further, compare the marginal abatement costs and social costs of carbon for different stabilization goals as determined by the Stern Review.
- Finally, explore the concept of discounting and discount rates for calculating carbon prices.
- This reading uses the United Kingdom (UK) as the area of study but this reading can be discussed in the context of other regions.
By Richard Price and Simeon Thornton and Stephen Nelson, Economics Group, Department for Environment Food & Rural Affairs (Defra), London. Provided by Munich Personal RePEc Archive.