Carbon emissions in the Investment Framework

The previous carbon values in the Technical Note to TPG23-08: Carbon value in CBA were an interim measure. They were based on the exchange rate adjusted market price of the European Union Emissions Trading Scheme with annual indexation. This simple approach was sufficient given the interim nature of the previous values. They were, however, not aligned with NSW’s legislated emissions reduction targets. The current values were derived from a model of marginal emissions abatement costs specific to the New South Wales legislated net emissions reductions targets.

There are two common ways to value carbon emissions: a damage cost approach or target-consistent approach.  

Treasury did not adopt a damage cost approach – which estimates the net damage to society and the environment from carbon emissions – for several reasons. The damage cost approach would not have accounted for the state’s legislated net zero targets, there is disagreement over the appropriate modelling assumptions, estimates tend to vary widely across jurisdictions, and most governments are moving towards a target-consistent approach.

No. The carbon value is a shadow price of carbon designed for internal government use when doing CBA. It will not impact the price of goods and services or impose any additional costs on households. The carbon values are aimed at helping government agencies make more effective and efficient decisions with respect to the carbon emission impacts of initiatives.

No. The carbon value applies to emissions that occur within New South Wales and emissions from the manufacture and transport of materials consumed in the state, regardless of where they occur. This means, for example, that emissions from the manufacture of construction materials are included regardless of whether manufacture occurs in New South Wales or overseas. This avoids incentives to shift emissions outside the state.