Writers:
Pietro Galgani, Standard Lead, True Price
Reinier de Adelhart Toorop, Head of Research, Impact Institute & True Price
Loes Verdonk, Research Analyst at Impact Institute
At True Price, we believe in radical transparency. One barrier to a true price future is that calculating true prices isn’t always easy – it takes data, assumptions, and clear methods. We do many of these calculations and publish the results, but real change happens when many organisations can do it themselves. That’s why we’ve been making our methodology increasingly open source over the past decade.
One publication we update annually is the Monetisation Factors for True Pricing: a set of “shadow prices” used to express externalities in euros. Part of the year-on-year change is simply inflation adjustment (you don’t want to report impacts in “old Euros”), but we also update values based on the latest scientific and economic insights. The biggest change this year is the climate. Our climate monetisation factor almost doubled: from €163 to €312 per tonne of CO2-eq.
Many people asked why.
Short answer: because prevention is cheaper than the cure. Or rather: prevention is failing and we must prepare for an expensive cure. The expected cost of climate damages is rising – and the claim that most damage can be prevented or undone can no longer be made.
Why we remain optimistic, but not climate-optimists
When we published our climate factor in 2021, we had strong hope that global action would be able to prevent the worst climate disasters. In the meanwhile, that hope has gone. Let’s discuss three reasons.
1) Global action for emissions reduction is failing.
After Paris (2015), progress has been uneven – and global action is insufficient for a 1.5°C-consistent path. Recent geopolitical developments have weakened rather than strengthened international cooperation. A series of climate summits failed to set hard ambitions, and the U.S. withdrew from the Paris Agreement for a second time.
2) Carbon removal is also not delivering
Forest-based offsetting does not reliably deliver additional and durable climate benefits. A Science study evaluating voluntary REDD+ avoided-deforestation projects finds that most projects did not significantly reduce deforestation, and that a large share of issued or expected credits are not linked to real, additional emission reductions. Even in regulated forestry offset programmes, researchers have identified substantial over-crediting. While we do believe forest-based carbon projects have benefits and should continue, we also see that many (or most) of them are not a reliable way to offset someone else’s emissions.
Meanwhile, durable removals often cited to clean up future overshoot (e.g., direct air capture) remain small relative to what many net-zero pathways assume later in the century. The IPCC is clear that carbon dioxide removal is not a substitute for immediate and deep emissions reductions, and that many climate changes are irreversible on human timescales.
3) Current-policy warming projections remain far above the Paris targets.
As a consequence of the dynamics above – temperature projections under current pledges and policies remain far above the Paris targets. The IPCC’s AR6 Working Group I (2021) concluded that global warming is more likely than not to reach 1.5°C already in the near future (i.e., before 2040). Climate Action Tracker estimates that current policies are projected to result in about 2.6°C warming above pre-industrial levels by 2100. UNEP’s Emissions Gap Report 2024 similarly warns that failing to increase ambition in new national action plans would put the world on course for 2.6–3.1°C of warming over the course of this century.
What this means for true prices: from Marginal Abatement Cost to Social Cost of Carbon
True Price valuation factors are based on the principle of remediation, inspired by the UN Guiding Principles on Business and Human Rights (UNGP). In practice, True Price operationalises remediation as: restore what can be restored; compensate for irreversible damage. When GHG emissions were seen as reversible, thanks to carbon markets, we used a restoration approach, a cost of action. Now that we believe them to create irreversible damage, we switch to a compensation approach, looking at the cost of inaction, the damage cost.
The cost of action was operationalized as the so-called Marginal Abatement Cost. Preventing climate disaster would cost the world billions and billions of Euros. And to meet the Paris targets, you would need to pay about 163 euros per additional tonne of CO2 emitted.
Given the evidence above, we now treat a larger part of climate impact as damage that will occur and must be borne. All we can do is to compensate losses. That’s why we switched to the Social Cost of Carbon the estimated global economic damage caused by emitting one additional tonne of CO2 today – including impacts such as agricultural losses, infrastructure damage (e.g., extreme weather and sea-level rise), and health (e.g., heat stress).
To be fair, we couldn’t find an analysis that really represents what we want to see: how much you should compensate present and future generations if you emit GHG today, taking a rights-based perspective. Instead, most studies focus purely on GDP loss.
Furthermore, the literature does not quite agree on a simple point value for the Social Cost of Carbon. Values cited range from well below the Marginal Abatement Cost to far over 1,000 Euro per tonne. Also, there are many forms of climate damage that are not fully captured by these models, like for example loss of ecosystems and biodiversity, or food insecurity. Our updated value is based on a 2024 meta-analysis of Frances C. Moore et al., which synthesises the empirical literature and complements it with an expert survey.
Moore and her co-authors are researchers from six different top universities in Europe and the US. They show that estimates of the social cost of carbon vary widely in the literature, largely due to different assumptions about (i) how damages scale with temperature, and (ii) how we discount future harm – Because much of the damage occurs decades (or centuries) into the future, estimates depend strongly on the discount rate. The authors recognize that the science of modelling the Social Cost of Carbon is still in evolution, and there is no complete agreement on how to do it. Therefore they complement their analysis of the literature with an expert survey, and determine the Social Cost of Carbon that you would get if you would apply best modelling practices according to experts. The result is €312/tonne CO2-eq, with a discount rate that is not fixed, but a distribution centered around 2% based on the expert survey.
To wrap up
We’re proud to publish these monetisation factors each year. Large changes are never ideal – but delaying a methodological correction can be worse. After re-evaluating the evidence, continuing to price climate impacts using a restoration framing no longer felt defensible, so we corrected it sooner rather than later. We hope these factors continue to be widely used. Questions and comments from users are always welcome, and we invite users, experts and interested people to reach out
Access the Monetisation Factors for True Pricing for more information.
