The Social Cost of Carbon

To celebrate the day where I hand in my environmental economics essay, I will dedicate this post to my topic, the social cost of carbon.


The social cost of carbon is – pretty straight forward – a price for carbon emissions. Whether it’s during the production of clothes, meat or the paper you cry your tears during exam season on, firms emit CO2 which then gets stuck in the atmosphere and contributes to global warming. While global warming is starting to annoy us a little now, it is very likely to get much worse in the future, especially if we continue emitting carbon like we do now. Economists like to think of prices as a communication device. If the price for chocolate increases then there might be some difficulties in the chocolate-making-process which are translated into a higher price (more on prices from our article a few weeks ago). The idea behind this is great, but some things, such as the environment and more specifically in this case carbon, are not traded in a market. No one is really buying carbon. The environment is bearing the costs of carbon in terms of a warming climate without anyone actually compensating for this. This is where the social cost of carbon enters the stage. However, since we cannot simply observe the demand and supply for carbon and determine an efficient price, the cost of carbon needs to be calculated manually, which sadly brings us to the dire reality that it can also be easily manipulated. Someone like Trump could dictate an approach that leads to a lower cost of carbon, signalling (falsely) that carbon emissions aren’t really as bad as all those scientists keep insisting.  Even worse, to truly combat climate change international cooperation is necessary, but not every country has the same incentive to reduce carbon emissions. Some cold countries such as Russia could even benefit (at least for a while) from a warming planet and thus better conditions for agriculture. Good old Germany, too, won’t be as affected by climate change as poor Brazil for example. And apparently, people drowning and millions of migrants is not enough of an incentive for the international community to get their s%!$ together and start acting. A global cost of carbon could at least attempt to reign in the enormous amounts of carbon that are emitted and reflect how much our cruise ship trips and cheeseburgers truly cost.

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