The social cost of carbon (SCC) is one of the values of carbon being considered in international and domestic discussions regarding the pricing of carbon dioxide emissions. The SCC is conceptually the marginal damage to society from emitting carbon dioxide (CO2) and contributing to climate change. SCCs are regarded as an option for pricing carbon in that they represent a monetization of climate damage externalities from activities emitting CO2 that could be internalized into decisions. However, there are essential conceptual and practical issues to consider. This study distinguishes different types of SCCs—baseline, optimal, and policy, and discusses issues regarding the state of the art for SCC estimation, global damage modeling, and economically optimal carbon pricing. The study also briefly discusses SCC (and carbon tax) application issues that can compromise CO2 reduction benefit and net benefit estimates, as well as considers other options for developing a carbon tax.
Authors Steven Rose