Social Cost Of Carbon

Social Cost Of Carbon

Subject: Environment

Section: Climate Change

Context- The Biden administration’s social cost estimate is about $51, meaning every ton of carbon dioxide spewed from a power plant or tail pipe today is projected to contribute to $51 in economic damages in coming years.

Concept-

About Social cost of carbon:

• The social cost of carbon (SCC) is an estimate, in monetary value. It is the economic damages that would result from emitting one additional ton of greenhouse gases into the atmosphere.
• The social cost of carbon (SCC) is the marginal cost of the impacts caused by emitting one extra tonne of greenhouse gas (carbon dioxide equivalent) at any point in time, inclusive of ‘non-market’ impacts on the environment and human health.
• The social cost of carbon attempts to capture the value of all climate damage, centuries into the future.
• Calculating the SCC requires estimating the impacts of climate change. This includes impacts on human health, as measured by the amount of damage done and the cost to remedy it.
• Carbon dioxide emissions are costing the Indian economy up to $210 billion every year. It is likely to suffer highest economic damage from climate change after the US.
• The country-level SCC for the India alone is estimated to be about $86 per tonne of CO2.
• For US, the cost is about $50 billion per tonne. This means that the nearly five billion metric tonnes of CO2 the US emits each year is costing the US economy about $250 billion.

Carbon pricing recommendations:

• It is an instrument that captures the external costs of greenhouse gas (GHG) emissions—the costs of emissions that the public pays for, such as damage to crops, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise—and ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO2) emitted.
• A price on carbon helps shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it.
• According to economic theory, a carbon price should be set equal to the SCC.
• In reality, carbon tax and carbon emission trading only cover a limited number of countries and sectors.
• Carbon pricing reflects how much companies are willing to pay today for a limited amount of emission credits offered at auction.
• In other words, the social cost of carbon guides policy, while carbon pricing represents policy in practice.