SOCIAL COST OF CARBON

Governments can make climate damage count in decisions on public spending and regulation by adopting an official monetary value for each additional tonne of CO₂ emitted. This value, the social cost of carbon, estimates harm such as lost agricultural production, damage from flooding and effects on health. Applying it when comparing a new road, an energy project or a proposed regulation adds those consequences to the financial costs and other benefits. Credible net carbon removal can then receive a value for the climate damage it avoids. The lever is the decision to require this valuation in public appraisal, or to adopt it in an organisation's own investment decisions. It can change which proposals are approved without imposing a tax or paying a subsidy.

The authority should identify the decisions that must use the value and whether it will adopt an existing estimate or commission research to produce one. The estimate should state whose damages are counted, which emissions year it applies to and how future harm is valued relative to harm today. Those choices can materially change the result. Project assessments also need reliable estimates of emissions and removals over their lifetimes, including possible later release of stored carbon. A damage-based estimate answers how much harm emissions cause; a value calculated from the cost of meeting a climate target answers a different question. Decision-makers should know which basis they are using and test whether plausible alternative assumptions change the preferred proposal.

A common carbon value makes climate consequences visible in decisions otherwise dominated by financial costs. It can help justify a higher-cost option whose additional emissions reductions or removals create greater public benefit. Applying the same approach across agencies or investment portfolios also makes competing proposals more comparable. For CDR, the lever can reveal benefits that private buyers do not pay for. An appraisal can support approval or a funding case, but a separate budget or purchasing decision must supply the money.

A low estimate can make damaging projects appear cheaper than they are, particularly when difficult-to-measure harms or impacts outside the jurisdiction are omitted. Giving little weight to future harm also reduces the apparent benefit of action today. Conversely, counting the same climate benefit twice or treating temporary storage as permanent can exaggerate a project's value. A single number can hide wide uncertainty and unequal impacts on different communities. Officials may also mistake this estimate of social benefit for the market price of removals or the amount government should offer suppliers.

Evaluation should examine where the value changed a decision, the emissions and removals attributed to each option, sensitivity ranges and any double counting. Scheduled methodological reviews can incorporate new science, economic data and discounting evidence. Reporting should distinguish forecast climate benefits from measured project outcomes. Identified errors should prompt corrected appraisals and, where material, reconsideration of the affected decision.

The finance ministry, regulator or organisation's governing body should decide where the valuation is required and how it enters approval decisions. Economists and climate scientists should explain the damage estimates and the consequences of different assumptions. Project developers and engineering teams should provide evidence on expected emissions, removals and storage duration. People affected by proposed projects and groups exposed to climate harm should be able to challenge omitted impacts. Independent reviewers should check that decision-makers apply the chosen method consistently and disclose material uncertainties.

National governments and supranational bodies can prescribe valuation rules for their spending and regulatory decisions. Regional and municipal authorities can do so for investments within their powers. International development institutions can apply the method to projects they appraise. Companies and philanthropic organisations can adopt it in their investment or grant decisions.