The social cost of carbon (SCC) is an estimated cost of the economic impacts of additional CO₂ emissions. By studying economics at the graduate level, students can delve into the modeling that goes into calculating the SCC, equipping themselves to shape climate-centric policies and spearhead impactful shifts toward a greener future.
As the world teeters on the precipice of irreversible climate change, can the field of economics provide a toolkit for helping us craft informed solutions? One of the most critical economic concepts in our arsenal of tools to confront this global challenge is calculating the social cost of carbon (SCC). But the calculation of SCC isn’t basic arithmetic, it requires delving deep into complex economic modeling.
A master’s degree in economics or finance can help students gain the knowledge and expertise required to calculate the social cost of carbon. Trained economists are uniquely positioned to bring informed perspectives to the table and help craft global efforts to confront and mitigate the implications of climate change.
As defined by Michael Barnett, an Assistant Professor W.P. Carey School of Business at Arizona State University, the social cost of carbon is “a policy tool that attaches a price tag to the long-term economic damage caused by one ton of carbon dioxide, hence the cost to society.” (01:11)
The SCC encompasses a wide range of negative impacts, including agricultural losses from altered weather patterns and harmful effects on human health. However, it’s not just the immediate damages that SCC considers. These calculations also account for the longer-term consequences of rising sea levels and desertification, disruptions in global trade, the cost of adapting infrastructures, and the economic toll of displaced populations from areas becoming uninhabitable. SCC is a pivotal tool for policymakers, businesses, and environmental advocates.
It translates the often abstract concept of environmental degradation into a concrete monetary figure. By doing so, the SCC provides a foundation upon which effective climate strategies and regulations can be evaluated and implemented.
Historically, the ramifications of greenhouse gasses on climate change were often overlooked when evaluating the pros and cons of major projects or legal regulations. In the US, it wasn’t until a legal challenge brought forth by the Center for Biological Diversity in 2008 that the federal government was mandated to account for the costs and benefits of changes in greenhouse gas emissions as part of a standard economic analysis.
Understanding the SCC is not just about recognizing the metric’s value; it’s about comprehending the intricate economic models, projections, and methodologies used to calculate it. By studying economics at a graduate level, individuals can delve deep into these complexities, equipping themselves with the tools to conduct economic research, influence policy, and drive meaningful change.
As Assistant Professor Barnett puts it, “Economics and finance, in general, have really useful and valuable tool sets to help us think about important policy questions, and climate change is clearly one of these important policy questions.” (02:01)
Recent research indicates that our current working estimates of the SCC might be extremely conservative. The actual social cost of carbon, some studies suggest, could triple the figure used by the US federal government. The Biden Administration currently uses an SCC estimate of $51 per ton of CO₂. However, other estimates set the SCC as high as $185 per ton.
As we stand at this juncture, the role of adept economists, capable of navigating and interpreting these evolving data landscapes, becomes paramount. Their insights and expertise will be critical in reshaping policy frameworks and strategic directions.
As global awareness of the social cost of carbon grows, its implications extend beyond governmental policy-making and into the boardroom. Companies are starting to recognize the long-term economic risks posed by not accounting for their carbon footprint. Incorporating SCC into business strategies is an ethical decision but also financially prudent in the long term.
The looming shadow of climate change brings palpable business risks, from disruptions in daily operations and supply chains or legal liabilities. With a deep comprehension of the SCC, companies are better equipped to forge resilient risk management plans. Moreover, businesses can pinpoint innovation hotspots by embracing the SCC calculations and strategically aligning themselves for fruitful future investments.
The potential for experts proficient in SCC is vast, spanning both the public and private sectors. Thankfully, academic institutions are recognizing the need to integrate SCC knowledge into their economic and business graduate programs.
A master’s degree in economics helps you make sense of our complex world. An advanced degree in economics opens up numerous professional paths. However, pursuing graduate studies in economics doesn’t have to merely be an investment in your professional growth. It can be a commitment to helping forge a greener and more sustainable future for everyone. As the world confronts the multifaceted challenges of climate change, the role of economics in providing solutions becomes increasingly evident. Developing the social cost of carbon as a tool shows the power of economics in charting our path forward.
Studying fields related to economics can signify a commitment to a greener world. Business schools like the W.P. Carey School of Business are increasingly incorporating sustainability issues into their graduate-level master’s degree curriculums. Understanding the SCC is crucial not only for economists but also for finance experts and business leaders. It will take a massive interdisciplinary effort to face the challenge of global climate change.
