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What is the Social Cost of Carbon (SCC)?

When economists seek to estimate the SCC, they must find a way to estimate the physical and human damages caused by CO2 emissions and the resulting climate change.

19th July 2011

The SCC is an estimate of the monetized damages associated with an incremental increase in greenhouse gas emissions in a given year. Another way of saying this is that the SCC is a measure of the benefit of reducing greenhouse gas emissions now and thereby avoiding costs in the future. As a very simple example, if emissions damage coral reefs, which in turn dis- courages tourists from visiting Australia, one cost incurred will be lost revenue to the tourist industry. Avoiding that cost is a benefit.

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Economist Frank Ackerman has called the "social cost of carbon" the most important number you never heard of. The Obama Administration (and the Bush Administration before it) uses the social cost of carbon to assess the benefits of regulations that would limit emissions of carbon dioxide (CO2). What is the social cost of carbon, where do the numbers come from, and why should policymakers take care when using them?
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