The social cost of carbon (SCC)

The social cost of carbon (SCC) is the marginal cost of the impacts caused by emitting one extra tonne of carbon emissions at any point in time. The purpose of putting a price on a ton of emitted CO2 is to aid people in evaluating whether adjustments to curb climate change are justified.

The social cost of carbon is a calculation focused on taking corrective measures to a "State of Nature", where there is evidence of market failure.

The Intergovernmental Panel on Climate Change suggested that a carbon price of $100/tCO2 could reduce global GHG emissions by at least half the 2019 level by 2030. Prominent 2021 models of saving for the social cost of carbon calculated a damage of more than $3000 per ton CO2 as a result of economy feedbacks and falling global GDP growth rates, while policy recommendations for a carbon price ranged from about $50 to $200.

A tentative sense check in 2021 by A. T. Parkinson using the simple Hobbesian ratio of historic data suggested a reasonable figure in 2016 could have been somewhere between $300tC and $400tC. It was expected that the system under evaluation is fundamentally slow response with long-run dynamics relative to the other systems that humans typically interact.

1. Economic Tool: The SCC is used as an economic tool to assess the impacts of carbon emissions on society and the economy. It assigns a monetary value to the long-term damages caused by each additional ton of CO2 emissions, taking into account factors like health impacts, agricultural losses, and property damage associated with climate change.

2. Policy Development: Governments and regulatory agencies use the SCC to inform policy decisions related to carbon emissions, climate change mitigation, and environmental regulations. It helps policymakers evaluate the costs and benefits of different climate policies, such as carbon taxes, emissions trading systems, and renewable energy incentives.

3. Discounting: SCC calculations typically involve discounting future damages to their present value. This means that the SCC reflects the net present value of damages expected to occur in the future as a result of current emissions. The choice of discount rate can significantly affect the SCC value.

4. Uncertainty: Estimating the SCC involves a degree of uncertainty, as it depends on various factors, including future climate impacts, economic projections, and policy assumptions. Different models and scenarios can result in a range of SCC values.

5. Global and Regional Estimates: SCC estimates can be calculated on both a global and regional basis. Global estimates provide a general sense of the overall damages associated with CO2 emissions, while regional estimates account for differences in climate impacts and adaptation capacity among regions.

6. Updates and Revisions: SCC values are periodically updated and revised to incorporate the latest scientific findings, economic data, and modeling techniques. These updates help ensure that SCC estimates remain relevant and accurate over time.

7. Integration into Policy: Some countries have integrated SCC estimates into their regulatory and policy frameworks. For example, the United States and certain other countries use SCC values in cost-benefit analyses for rulemaking related to emissions reductions and environmental protection.

8. Challenges and Controversies: Estimating the SCC is a complex task, and different models and assumptions can yield different results. Controversies can arise over factors like the choice of discount rate, the inclusion of non-monetized impacts, and the treatment of uncertainty.

The Social Cost of Carbon plays a crucial role in shaping climate policies and regulations by providing a way to quantify and account for the long-term economic consequences of carbon emissions. It helps policymakers make informed decisions about the trade-offs between reducing emissions and the potential costs associated with climate change impacts.