Keep Climate Policy Focused on the Social Cost of Carbon: A Proposed Shift away from the SCC is Ill Advised

Joseph E. Aldy, Matthew J. Kotchen, Robert N. Stavins and James H. Stock

Chapter 13 in Economics of Environment, Climate Change, and Wine:Selected Papers of Robert N Stavins, Volume 3 (2011–2023), 2025, pp 397-406 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In the context of climate change, the application of cost-benefit analysis to inform mitigation policies can help to achieve the best outcomes and avoid the worst: spending trillions of dollars but failing to get the job done (Arrow, 1996). The costs of a climate policy are the abatement costs of reducing emissions of carbon dioxide (CO2) (or other greenhouse gases). The standard measure of the benefits of a climate policy is the social cost of carbon (SCC), which measures the avoided economic damages associated with a metric ton of CO2 emissions. Recently, however, there have been calls for an alternative approach to policy evaluation that ignores the benefits of avoided climate damages and instead focuses only on minimizing the compliance costs of a given, politically determined climate objective (Stern and Stiglitz, 2021; Kaufman et al., 2020). We argue here that a shift from use of the SCC and cost-benefit analysis to an alternative approach for evaluating policy that focuses on costs alone would be misguided. Rather than advocate for alternative approaches, now is the time to support efforts to update the SCC and its application to official climate policy evaluation.

Keywords: Climate Change Economics; Climate Change Policy; Wine Economics; Environmental Economics; Energy Economics; Natural Resource Economics; Energy-Efficiency Gap; Climate Negotiators; Carbon Pricing; Carbon Pricing Policy; Greenhouse; SO2 Allowance Trading System; Clean Air Act; Intergovernmental Panel on Climate Change; Durban Climate Talks; The Paris Agreement; Terroir (search for similar items in EconPapers)
JEL-codes: Q5 Q54 Q56 Q58 (search for similar items in EconPapers)
Date: 2025
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