Implying climate impact from carbon prices and consumption

The value of the social cost of carbon (SCC) remains contested, despite having been described as the single most important concept in the economics of climate change. The SCC represents the discounted reduction in welfare caused by the release of an additional tonne of carbon dioxide equivalent (tCO2e) greenhouse gas emissions into the atmosphere. In practice, many estimates of the SCC are not robust or comparable, due to technical issues, including parameter estimation in climate assessment models. Using a market-based approach to calculate climate change metrics can avoid some of the controversy associated with calculating the SCC and subjectivity in deriving temperature alignment from transition plans. This study inverts results from an integrated assessment model commonly used to calculate the optimal SCC. A relationship is inferred between carbon price and both climate damages and implied temperature alignment. Using national data on effective cost of carbon (ECC), i.e. current carbon prices, the global market-implied temperature alignment is 3°C of warming. Using carbon consumption data to calculate implied climate impact, the per capita impact of higher-income countries is significantly higher than in low- and medium-income countries. The findings suggest that globally an ECC above $85/tCO2e may be required for implied temperature alignment to fall below 2°C of warming. However, both higher-income economies and those with high per capita carbon consumption levels may need to set their ECC at twice this level if their climate impact is to fall below a level aligned with limiting warming to 2°C.