Environmental Prices Handbook 2017

In practice, environmental prices can support decision-making in two ways:

When analysing the social impacts of investment decisions, environmental impacts can be included along with financial data because they can be assigned a monetary value using environmental prices. A case in point is Social Cost-Benefit Analysis (SCBA), where environmental prices are used primarily for valuation, providing a means of comparing environmental impacts with financial items to arrive at integral consideration of all the
impacts associated with an (investment) decision. In principle, valuation of environmental impacts using environmental prices occurs in every SCBA in which external impacts are also monetized (see e.g. (ECN; SEO, 2013)) and by companies in calculating social business cases.

In environmental analyses like Life Cycle Assessment (LCA), Environmental Impact Assessment (EIA) and benchmarking, environmental prices can be used to weight the various environmental impacts identified. The main aim here is environmental weighting, as a means of comparing the contribution of different environmental themes. Weighting of environmental impacts is sometimes carried out as a final step in LCAs in order to express the results in a ‘single-score indicator’. In line with the methodology employed in this Handbook, the welfare impacts of emissions are monetized within a standard welfare-economics framework.

In principle one could say that, because policy ambitions extend over a range of timeframes, an overall policy ‘roadmap’ can be adopted running through the individual targets for 2030 and 2050. One problem with this, though, is that, in order to achieve a 2°C target at least cost, one would have to achieve more than 40% in 2030. In other words, the targets agreed for 2030 are not ‘time-efficient’ in light of the targets likely to stem from the Paris Agreement.

Partly for this reason, in this Handbook we propose adopting two alternative abatement-cost methods for carbon emissions, based on:
1. The current policy path, using the existing targets for 2030 and extrapolating these to 2050.
2. The 2°C policy path, using the targets for 2050 to interpolate targets for earlier years such that an efficient price trajectory is achieved.

This is essentially the same approach as adopted in the scenarios, where for climate policy, besides the Low and High scenarios, a 2°C scenario was explored based on trends in carbon prices if the global community seriously pursues drastic emissions cuts. Below we explain
how environmental prices have been calculated in the two approaches. Since efforts to control climate change will intensify over time, with least-cost measures soon exhausted, the price tag on greenhouse gas reduction will rise year on year.

Environmental prices are constructed prices for the social cost of pollution, expressed in Euros per kilogram pollutant. Environmental prices thus indicate the loss of economic welfare that occurs when one additional kilogram of the pollutant finds its way into the environment. These prices can also be calculated for immaterial forms of pollution such as noise nuisance and ionizing radiation. In such cases the environmental price is expressed in Euros per unit of nuisance or exposure (in decibels, for example).

Environmental prices provide average values for the Netherlands, for emissions from an average emission source at an average emission site in the year 2015. In this Handbook these prices are presented at three levels:

At pollutant level: a value for emissions of environmentally damaging substances.

At midpoint level: a value for environmental themes such as climate change or acidification.

At endpoint level: a value for the impacts of environmental pollution, such as damage to human health or ecosystem services.

The methodology used in this Environmental Prices Handbook is designed to harmonize the values at pollutant, midpoint and endpoint level, to achieve consistent valuation of the impacts or pollution in the Netherlands.

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