The Shadow Price

Currently, the college estimates energy costs associated with new construction projects to determine whether to invest in energy saving technologies. These projected costs don't currently account for the social cost of the carbon emissions that are felt beyond Swarthmore. The faculty and staff reading group's proposal for the Carbon Charge included a new shadow pricing policy. The shadow price would be an additional cost, starting at $40 per metric ton of CO2 equivalent, added to the base project costs in determining which options the school should pursue.

For example, as the college is constructing a new building, it may consider heating the building either with a geothermal well or with natural gas boilers. If the baseline costs are shown in blue, then it will be cheaper to heat the building with natural gas. With the addition of the shadow price, a lifecycle social cost of the carbon associated with either option would also be calculated and added to the projected costs, in gray. In this case, because geothermal heating has a smaller carbon footprint, it would become the "cheaper" option, and the college would pay the higher upfront costs to install a geothermal well. 

It should be noted that the college's construction decision-making process is more complicated than this example makes it seem, and we're still unsure how to formally implement a shadow price. The Carbon Charge Committee will work on finding a way to make this theory work in practice at Swarthmore.