Jason S. Johnston

The Social Cost of Carbon

PUBLISHER
Regulation
DATE
2016 Spring
 

Abstract

The Social Cost of Carbon (SCC) is an estimate of the monetized damages from a marginal increase in carbon dioxide emissions in a given year. The SCC is important to the design of climate change policies intended to reduce CO2 emissions because the marginal benefit of reducing emissions isthe avoided marginal damagesfrom emissions. Basic economic principlestell usthat policiesshould reduce emissions until the marginal benefit equals the marginal cost. The calculation of the SCC by economists has allowed federal agencies such as the U.S. Environmental protection Agency to conduct cost-benefit analysis of regulatory actions that reduce such emissions. The inclusion ofthe SCCoften changesthe evaluation of many other environmental regulations from creating net costs to net benefits. For example, according to Michael greenstone et al.,the EpA estimate of the costs of its greenhouse gas (gHg) tailpipe emission regulation for light-duty gasoline-powered cars and trucks (which required increases in average miles-per-gallon fuel efficiency)was $350 billion.Withouttaking the SCCinto account, the various benefits of the regulation—such as increased energy security from reduced oil imports, and reduced local air pollutants, noise, and congestion—totaled only $280 billion. However, once the EpA added the SCC as a quantified benefit, what would have been a net cost of $70 billion from the rule became a net benefit of $100 billion.

 

Citation

Jason S. Johnston, The Social Cost of Carbon, Regulation 36-44 (2016).
 

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