Straightforward calculations of cost-effectiveness, made with reference to
the shadow price of carbon, will not necessarily capture the wider benefits: a
mitigation option to reduce GHG emissions, for example, may also benefit
biodiversity or landscape, but this would not be included in the calculation. Of
these wider ancillary benefits the most significant is likely to relate to the
value of avoided damages from diffuse pollution to water. Accounting for these
benefits is important because achieving multiple policy goals at once may
significantly alter the cost. Measures that are apparently low-cost may be
viewed less favourably if they also have a negative impact on landscape or
biodiversity or water quality. High cost measures may become more effective if
they also deliver ancillary benefits.
A changing situation
of cost-effectiveness balance the costs of mitigation measures and the shadow
price of carbon. Thus the cost-effectiveness of any particular option can change
as the costs of undertaking the measure fall or as the SPC rises. The SPC
currently £25/tonne/CO2e is likely to rise as our understanding of the impact
of climate change improves. Measures that are currently cost-ineffective may
become worthwhile as the SPC grows.
Acknowledging wider net effects
Beyond the ancillary effects, potential implementation of mitigation options
in the UK (and thus their implicit cost-effectiveness) must also take into
account the wider changes that these options might bring about. It is not clear,
for example, that reducing emissions from UK agriculture would actually deliver
a reduction in emissions globally. Although emissions in the UK could be reduced
by cutting the number of livestock, unless the demand for livestock products
also falls the demand would simply be satisfied by supplies from elsewhere.
Displacing production activities into other countries does not address the
global emissions objective. Such displacement and life cycle costs are also
relevant to the accurate portrayal of the UK Marginal Abatement Cost Curve potential.