Appendix 1: Pricing Non-Financial Outcomes
Environmental Impacts
There are five models for pricing environmental impacts.
Carbon Pricing 110
Carbon pricing is typically used by governments to reduce domestic greenhouse gas (GHG) emissions by assigning a financial cost to emissions, thereby creating an economic incentive for reduction. It addresses the negative externalities of CO 2 and other GHG emissions, which impose social costs, which are not reflected within market prices.
Emissions Trading Systems (ETS) 111
ETS became a pivotal climate policy following the signing of the Paris Agreement in 2016. By establishing a price signal, carbon pricing aims to influence and shape consumption and investment patterns, aligning economic development with climate protection. The underlying rationale is that those responsible for emissions should bear their environmental costs, incentivising mitigation.
Carbon Taxes 112
Carbon taxes impose a fixed levy on emissions or the carbon content of fossil fuels, typically measured per ton of CO 2 equivalent. Unlike ETSs, where emissions reductions are predetermined and prices fluctuate based on market conditions, a carbon tax provides price certainty while leaving the extent of emissions reduction uncertain.
Carbon Crediting 113
Carbon crediting enables the quantification and sale of emissions reductions from specific projects or programs. These credits can be traded domestically or internationally, often within ETS markets.
Results-Based Climate Finance (RBCF) 114
RBCF links funding to the achievement of verified climate-related outcomes, such as emissions reductions. RBCF initiatives not only finance the purchase of verified GHG reductions but also aim to generate broader socio-economic benefits, including poverty alleviation, improved access to clean energy, and enhanced public health.
Social Impacts
Unlike environmental impacts - where the negative or positive impacts are already widely priced - to carry out an ONPV calculation including social impact factors also requires an additional process of valuation to assign a ‘price’ to social impact and several valuation methodologies have been developed to address this issue. The fundamental objective of these methodologies is to provide calculative models with which to measure and disclose positivist accountings of the value of various 110 See: https://carbonpricingdashboard.worldbank.org 111 See: https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en 112 See https://taxfoundation.org/data/all/eu/carbon-taxes-europe-2024/. 113 See: https://carboncredits.com/the-ultimate-guide-to-understanding-carbon-credits/ 114 See https://www.worldbank.org/en/news/feature/2022/08/17/what-you-need-to-know-about-results-based-climate- finance.
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