Valuing GHG Emissions and Uncertainty in Transport Cost Benefit Analysis



Valuing GHG Emissions and Uncertainty in Transport Cost Benefit Analysis

Authors

David MEUNIER, Université Paris-Est, LVMT, UMR_T9403, Emile QUINET, Paris School of Economics-Ecole Des Ponts ParisTech

Description

Valuation of CO2 effects in CBA needs a unit value and a physical quantity. After a short review we focus on the 1st item and discuss methods for correcting common biases and taking account of systemic risk, giving examples for several project types.

Abstract

The transport sector has an important and increasing role in greenhouse gases (GHG) emissions. Global climate change is a growing issue in the public debate, and cost benefit analysis (CBA) of transport projects should give in this regard accurate and objective information.

Indeed, many countries have included this concern in their CBA guidelines. But it usually consists simply in adopting an official value per ton of carbon emitted.

Does this mean that the issue is correctly treated by CBA? Since “the devil is in the details” this paper reviews key items influencing the quality of CO2 emission valuation, estimating the order of magnitude of their effects and taking into account the nature and degree of imprecision and uncertainty associated with them.

In CBA, valuation of CO2 effects is represented by the product of a unit value and a physical quantity. Without dwelling much on the issue of fixing a unit value for CO2 emissions, which is supposed to capture also the uncertainties associated with a marginal ton of CO2 emitted, we focus on the quality of estimation of the variations in physical CO2 quantities emitted due to a given transport project. Using feedback from ex-post studies together with recent developments in applied methods for risk valuation, we discuss methods for correcting common biases and for taking into account systemic risk, i.e. the risk associated with the links between the benefits of an investment and economic growth. These methods are illustrated for several types of emission reduction projects, giving indications on how their respective risk premiums due to quantity uncertainties could translate into adjusted discount rates.

Publisher

Association for European Transport