Review of the Shadow Price of Carbon in the EU

The objective of this report is to review literature and modelling results and provide guidance i) on the level and path of the cost of carbon, interpreted here as the shadow price of reaching a net zero emission target in the EU by 2050, and ii) on application of the cost of carbon within cost-benefit analysis (CBA). In the AR6 Scenario Database (which served as valuable input to the IPCCs Sixth Assessment report (AR6)) there are in total 300 scenarios modelled by Integrated Assessment Models that have found carbon prices that lead to fulfilment of the 1.5˚C target at lowest cost. In this report, we summarize the findings from these and other scenarios, and analyse the data set of shadow prices in terms of their appropriateness for CBA. We also discuss reasons for the large variation in shadow price trajectories, potential biases and how to navigate this uncertainty.