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Policy

The Social Cost of Carbon

For a company looking to invest in carbon removal, cost is one of the most important considerations. One carbon credit corresponds to one tonne of carbon, but not all credits are priced the same. Carbon removal credits can be priced anywhere in the range of $25-$1500, while some avoidance credits on the market cost as little as $2-3. Choosing the cheapest option may seem like a good business move. After all, it has the same impact on the climate, right? The answer is, as usual, not that simple. To make climate policy and investment effective, carbon pricing needs to account for how emissions affect society.

Sita Bates

Forest and Nature Management Specialist

What is the social cost of carbon?

The Social Cost of Carbon (SCC) is a monetary estimate of the total societal damage that would be caused by releasing one additional tonne of carbon into the atmosphere. These hidden costs include:

  • Impacts on human health (e.g. increased mortality due to air pollution)
  • Damage to infrastructure from extreme weather events
  • Loss of biodiversity and ecosystem services
  • Impacts on food and energy systems
Expressing the effects of global warming in economic terms helps policymakers and industry understand the impact of their decisions, and can make emission reductions more economically viable.“Quality comes with price and if it sounds too good to be true, it usually is. Claiming carbon neutrality when paying 10$/tonne, while the social cost of carbon has been found to be 20x this price, sets you up for accusations of greenwashing, for good reason.”

Simon Bager, Co-Founder and Chief Impact Officer

Valuing the Social Cost of Carbon Credits

There isn’t one agreed-upon SCC value, or a common framework for calculating it.

Official recommendations range from $100/tCO2 (UN IPCC) to well into the thousands of dollars. These estimations are reached by modelling climatic responses (such as temperature and sea level rise) to expected future emissions. The projected cost of damages is then converted into present-day economic value.

How much should a credit cost?

Various valuations for what a carbon credit, or one tonne of carbon emissions, might be worth.
46 €80-110/tCO2 $190/tCO2 €200-250/tCO2
The number of countries with carbon pricing policies in place. Average prices on the EU Emissions Trading Scheme over the past year. The latest SCC figure set by the US; a big step up from the previous value of $51/tCO2. By the Danish Council on Climate Change.

Klimate's approach to carbon pricing

As Klimate is based in Denmark, we price our portfolios in line with the carbon tax rate recommended by the Danish Council on Climate Change. To achieve the country's ambitious climate goals - which include reaching Net Zero by 2050-experts suggest raising carbon prices to $200-$250/tCO2 by 2030 (IMF).

Our portfolios are also designed according to the Oxford Offsetting Principles, which aim for high-quality carbon credits, incorporating long-lasting storage, and net zero goals. We place emphasis on co-benefits and the long-term outlook of our carbon removal solutions.

A move towards valuing the true cost of carbon, especially in the wide range of carbon removal credit pricing, is a difficult process.

Accurate SCC estimates are crucial to ensure that outcomes actually contribute to the climate goals set by governments and businesses, and larger targets like limiting global warming to 1.5ºc by 2100. By pricing our carbon removal portfolios in line with the latest science, Klimate seeks to make sure its clients stay ahead of the curve and create real climate impact.

Sita Bates

Forest and Nature Management Specialist

Sita currently studies an MS in Forest and Nature Management at the University of Copenhagen. She has experience in digital marketing for carbon markets as well as environmental journalism, bringing this expertise to author technical and market-based topics.

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