The role of the social cost of carbon in policy

Estimates of the marginal value of carbon dioxide—the social cost of carbon (SCC)—were recently adopted by both the U.S. and U.K. Governments in order to satisfy requirements to value estimated greenhouse gas (GHG) changes of new federal regulations. However, the development and use of SCC estimates comes with significant challenges and controversial decisions. This paper summarizes the key issues and then derives guidance for developing, selecting, and applying the estimates that follows from the fundamental scientific nature and economic principles associated with GHGs and climate change, as well as an understanding of the state of the art for estimating the SCC. The paper evaluates recent estimates in light of the guidance and finds the estimates inconsistent with the guidance in a number of significant areas. The paper also differentiates SCC policy applications in terms of policies with incremental versus nonincremental implications for global GHGs, and identifies serious issues for application of the SCC in setting and evaluating climate policy targets. WIREs Clim Change 2012, 3:163–195. doi: 10.1002/wcc.163 This article is categorized under: Climate Economics > Aggregation Techniques for Impacts and Mitigation Costs