The Shadow Price

The construction and renovation planning and implementation process involves a huge number of decisions requiring thoughtful cost-benefit analysis. In considerations about energy systems, building materials, lighting, and other building components, the College has evaluated sustainability impacts, but often as qualitative components in the analysis. The shadow price provides a structure and framework for incorporating the costs of our carbon emissions that are felt beyond Swarthmore’s campus. Stated simply, with a shadow price, the College makes decisions as though we would have to pay $100 per ton CO2e emitted.

For example, as the College is constructing a new building, it may consider heating the building either with ground source heat pumps or with natural gas boilers. In the example below, the upfront financial costs are shown in dark green, the life cycle maintenance and operations costs are in light green, and the lifecycle social cost of carbon emissions is in gray.  If the price on carbon is ignored, it would be cheaper to heat the building with natural gas. With the addition of the shadow price, however, the smaller carbon impact of the ground source heat pump system would make it the "cheaper" option, and it would come out ahead in the cost benefit analysis.

We are continuing to work with Capital Planning and Project Management to best integrate shadow pricing into our construction and renovation project process.

Evaluated total cost = (financial cost) + ((tons CO2e) * (social cost/tonCO2e))

 

To implement this in practice, Swarthmore will be making use of a lifecycle cost analysis calculator. The calculator was initially developed by Harvard, and adapted to a small college setting by Vassar. You can download the most recent version of Swarthmore's lifecycle cost analysis calculator here. (Last updated August 16, 2017)