EME 444
Global Energy Enterprise

Social Cost of Carbon


In policy making, we must consider the cost of a proposed policy against the benefits of the proposed policy. How much would it cost taxpayers? How much would it benefit tax payers?

In the case of policies designed to address climate change, how does government put a value on the benefits of reducing emissions? What is saving a ton of CO2 emissions worth to tax payers? A mechanism used to give a value to emission reductions is called the social cost of carbon (SCC). It puts a dollar value of the (calculated/estimated) costs to society caused by a single ton (or tonne) of CO2 emissions over the lifetime of said emissions. In other words, the SCC is the calculated cost, in dollars, of the social cost of carbon emissions. Remember that social cost = private cost + external cost. Since there is no actual price for emissions in the U.S., there is no private cost. Thus, the social cost is equal to the external cost. These costs are entirely borne by society.

The SCC is set by the federal government and is used to determine the value to taxpayers of proposed policies designed to reduce CO2 emissions. As such, it is a matter of public politics with a wide range of highly motivated and engaged stakeholders.

To Read Now

Calculating and utilizing the SCC is a complicated and controversial topic. The following articles are not meant to be comprehensive, but to provide a snapshot of the science behind, and some competing views of SCC.

Optional Reading