SOCIAL COST OF CARBON (SCC)

In economics, comparing impacts over time requires a discount rate. This rate determines the weight placed on impacts occurring at different times.

The impact of the extra tonne of carbon dioxide in the atmosphere must then be converted to the equivalent impacts when the tonne of carbon dioxide was emitted.

The social cost of carbon (SCC) is the marginal cost of emitting one extra tonne of carbon (as carbon dioxide) at any point in time.

To calculate the SCC, the atmospheric residence time of carbon dioxide must be estimated, along with an estimate of the impacts of climate change.

According to economic theory:
a) if SCC estimates were complete and markets perfect, a carbon tax should be set equal to the SCC.
b) Emission permits would also have a value equal to the SCC. In reality, however, markets are not perfect, and SCC estimates are not complete (Yohe et al.., 2007:823).

An amount of CO2 pollution is measured by the weight (mass) of the pollution. Sometimes this is measured directly as the weight of the carbon dioxide molecules. This is called a tonne of carbon dioxide and is abbreviated "tCO2".

Alternatively, the pollution's weight can be measured by adding up only the weight of the carbon atoms in the pollution, ignoring the oxygen atoms;
This is called a tonne of carbon and is abbreviated "tC".

Estimates of the dollar cost of carbon dioxide pollution is given per tonne, either carbon, $X/tC,
or carbon dioxide, $X/tCO2.
One tC is roughly equivalent to 3.7 tCO2.

Estimates of the SCC are highly uncertain. Yohe et al. (2007:813) summarized the literature on SCC estimates:
Peer-reviewed estimates of the SCC for 2005 had an average value of $43/tC ($12/tCO2) with a standard deviation of $83/tC.

The wide range of estimates is explained mostly by underlying uncertainties in the science of climate change (e.g., the climate sensitivity, which is a measure of the amount of global warming expected for a doubling in the atmospheric concentration of CO_2).

Different choices of discount rate, different valuations of economic and non-economic impacts, treatment of equity, and how potential catastrophic impacts are estimated.

Other estimates of the SCC spanned at least three orders of magnitude, from less than $1/tC to over $1,500/tC.
The true SCC is expected to increase over time.

The rate of increase will very likely be 2 to 4% per year. A recent meta-analysis of the literature on the estimates of the social costs of carbon, however, finds evidence of publication bias in favor of larger estimates.

The US federal government, based on Executive Order 12866 and the findings of an interagency working group, has had an official estimate of the SCC since 2010. It was $36/tC02 in 2015 (about $132/tC).

In 2014, the Department of Energy factored in that cost when promulgating regulations on standards for commercial refrigeration equipment. Industry groups sued over the issue. In 2016 the 7th U.S. Circuit Court of Appeals upheld the rules.