10  Shadow cost of carbon



10.2 When to use the input?

This input is recommended for projects where the full socio-economic value of the initiative is studied, particularly involving the environmental assessment.


In Economic Analyses the concept of ‘shadow cost’ is often used when working with an abstract commodity or intangible asset. Typically, two elements are reflected in the ‘shadow cost’:

  • The cost of negative externalities such as pollution in this case
  • The shadow cost involves the consideration of future policies

Shadow costs are inexact by definition, as they are based on assumptions, but their usefulness resides in that they help to understand the full socio-economic merits of a project. Please note that the shadow cost of carbon does not constitute in any way an optimal value for any policy instrument.

10.5 References

European Investment Bank, EIB Group Climate Bank Roadmap 2021-2025,” Nov. 2020 [Online]. Available: https://www.eib.org/en/publications/the-eib-group-climate-bank-roadmap
IPCC, “Global Warming of 1.5 C,” 2018 [Online]. Available: https://www.ipcc.ch/sr15/