Social Cost of Carbon
An economic estimate of the monetary damage caused by emitting one additional ton of carbon dioxide, used by governments and organizations to evaluate the benefits of climate policies.
FinanceThe social cost of carbon (SCC) is a monetary value that represents the total economic harm caused by releasing one metric ton of CO2 into the atmosphere. It accounts for projected impacts on agriculture, human health, property damage from flooding, ecosystem loss, and other climate-related costs over time.
How It Is Calculated
SCC estimates use integrated assessment models that combine climate science, economic projections, and damage functions. Key variables include the chosen discount rate (which reflects how future costs are valued today), climate sensitivity assumptions, and the time horizon considered. Estimates vary widely, from around $50 to over $200 per ton of CO2.
Policy Applications
- Cost-benefit analysis: Governments use the SCC to evaluate whether climate regulations deliver net economic benefits.
- Carbon pricing: The SCC informs the level at which carbon taxes or cap-and-trade allowance prices should be set.
- Investment decisions: Companies use SCC-like internal carbon prices to guide capital allocation toward lower-emission options.
Career Relevance
Understanding the social cost of carbon is valuable for climate economists, policy analysts, ESG specialists, and corporate finance professionals. Roles in government agencies, think tanks, consultancies, and investment firms increasingly require familiarity with carbon valuation methods and their application to decision-making.