Cost-Benefit Analysis For Climate Action

The European goal of achieving zero-net emissions by 2050 is extremely ambitious. Action must be taken across a broad agenda driven by collective ambition. But it also important to select projects and policy measures in the right economic order to alleviate the burden of the efforts for present generations. Although Cost-Benefit Analysis (CBA) has become the benchmark method to evaluate public policies since a long time, we argue that it should play a bigger role in the design and implementation of climate policies because abatement costs across and within sectors are highly heterogeneous. When applied to decarbonation policies, CBA firstly requires the selection of a shadow price of carbon, to monetize the climate benefits of investments and policies. However, the whole assesment framework must be updated, including the time horizon, the discount rate and the pricing of climate risks. We show that such an updated framework leads to an upwards revision in the assessment of the climate benefits of green public investments and more broadly of mitigation actions. Finally, there is a need to broaden the analysis beyond the efficiency criterion to deal with other dimensions of climate policies, such as their long-term effects on land use, or, above all, their distributive impacts. This requires specific analyses that should be articulated with CBA and carried out early to implement better climate policies than it has been done until now.