The social cost of carbon (SCC) assigns a monetary value to the economic and societal costs of accumulating CO2 emissions in the atmosphere, making it a key metric for shaping climate policy. In particular, it gives guidance for evaluating whether the benefits of a policy, regulation, or public investment exceed the costs, thereby helping allocate resources efficiently. While highly valuable in policy analysis, estimating SCC is not a seamless process, as it requires integrating climate science and economics, designing damage functions, and making assumptions about future emissions, discount rates, and various other parameters. The purpose of this paper is to synthesize discussions on the approaches and methodologies used in SCC estimation and their limitations, highlighting uncertainties of climate change impacts.
This commentary originated as part of the project on "Shadow pricing of resources."
