AGGREGATION AND CONSENSUS BUILDING IN AN AGREE-ON-ASSUMPTION FRAMEWORK 25. **As the above examples show, because Agree-on-Assumptions approaches rely on our being able to come to consensus on the parameters that affect a decision, they break down when there are ethical judgments and differing worldviews.** This is particularly the case of cost-benefit analysis, which seeks to aggregate all categories of costs and benefits into a single metric. This encourages analysts to use models and relationships for which we have or can potentially produce consensus. This may mean ignoring or assuming away many large and hidden uncertainties for which there is little consensus or knowledge. Additionally, choosing the costs and benefits to include can be highly subjective and reflect the priorities of analysts, rather than the priorities of stakeholders. For instance, should GHG emissions be a factor in prioritizing new energy generation projects? Those principally concerned with providing lowcost energy may argue that it should be given little weight or ignored, while those concerned with climate change may argue that it should be a key consideration.

26. **Decision makers must also ask themselves, “What evidence should we use to evaluate the options?”** Cost benefit metrics typically use market values to set the relative importance of different criteria. However, analysts may judge that no market value exists or the market undervalues a good. This is another subjective choice around which there is much disagreement. Do the market prices for developing shoreline adequately reflect the value of ecosystem services that coastal habitats provide? Does the market price of carbon emissions adequately reflect the future impact of climate change? If not, analysts may use shadow prices instead of market prices. But, as Box 4 shows, this too can be contentious, and different preferences for discount rate and other factors may lead to different costs.

# **Box 4. Setting the Social Cost of Carbon**

The United States has developed estimates of the Social Cost of Carbon (SCC) to analyze regulatory policies. The SCC was constructed using integrated assessment models that value discounted global damages arising from climate change scenarios through to 2050. The selection of the discount rate has a significant impact, given that costs are estimated over fifty years and that costs will increase as more severe impacts are felt over time. The SCC is presented as a range of values with four discount rates, 5 percent, 3 percent, 2.5 percent and 1 percent, with 3 percent as the central estimate. In 2010 the SCC at the 3 percent discount rate is estimated at $21 per ton of CO2 (tCO2) (at 2007 prices) rising 2 to 3 percent a year in real terms.

The United Kingdom uses a different approach and value for the SCC. The UK set an official shadow price for Carbon at £25 per ton of CO2 equivalent (tCO2e) in 2007 for the purposes of cost-benefit analysis of government policies, programs, and projects. This was based on the SCC advised by Stern Review, equivalent to £19/tCO2e. This is higher than the values in the US because the UK uses a lower discount rate and equity weighting. The shadow price was set higher than the underlying SCC in order to adequately reflect abatement costs that would be incurred to meet the government’s abatement goal (and thereby incentivize action) and in recognition of the government’s desire to be seen as a leader in climate change action. The SCC would increase by 2 percent a year to capture the rising incremental damage of each unit of carbon as temperatures rise. It would be subject to periodic review to assess progress towards the government’s abatement objectives and target emissions reductions.

This policy was substantially revised in 2009, when the UK shifted to a target-consistent approach, based on estimates of the abatement costs that would be incurred to meet specific emissions reduction 13