The Social Cost of Carbon: A High-Stakes, Flawed Metric
For over a decade, the so-called “social cost of carbon” (SCC) has become a central justification for wide-ranging U.S. climate and energy policies. In theory, the SCC assigns a dollar value to the anticipated future harm caused by each additional ton of carbon dioxide emissions. In practice, as I detail in my latest report for the National Center for Energy Analytics, it is a deeply flawed and highly speculative concept that is driving costly and counterproductive policy decisions.
State and Federal agencies have used the SCC to justify everything from electric vehicle mandates and offshore wind subsidies to bans on natural gas in new buildings. By incorporating arbitrary benefits of avoided CO2 emissions, the SCC creates a veneer of economic legitimacy for policies that, under a more grounded cost-benefit framework, would fail to justify themselves.
One of the most immediate and tangible effects of this is on consumer energy prices. Inflated SCC values have been used to rationalize higher electricity rates, more expensive vehicles, and mandates that force consumers to adopt uneconomical technologies. Consider a recent offshore wind proposal in New Jersey: over half of the projected “benefits” used to justify its approval were avoided carbon emissions—not the actual power it would deliver. Higher energy prices, of course, reverberate through the entire economy, raising the costs of all goods and services we consume.
In 2023, the Environmental Protection Agency released updated SCC estimates that placed the cost of carbon at $255 per ton in 2025, rising to $490 (in today’s dollars) by 2080. These values are significantly higher than earlier federal estimates and are built on forecasts extending 300 years or more into the future. If translated into a carbon tax, this would mean adding over $2 to the price of a gallon of gasoline today.
Forecasting the economic and technological landscape a few decades ahead is fraught with uncertainty. Making accurate projections about the state-of-the-world centuries into the future is fantasy. Expecting reliable outputs from models that attempt to forecast our world three centuries from now – technologies, medicines, economic well-being and climate in is akin to imagining that someone in 1725 could have predicted the rise of artificial intelligence and spaceships exploring the solar system.
A primary driver of these inflated SCC values is the discount rate—the mechanism used to convert future costs into present-day dollars. Small adjustments in the discount rate can yield wildly different results. Lower rates dramatically increase the present value of theoretical future damages, enabling modelers to justify massive regulatory expenditures today, regardless of their economic sense.
This is more than a technical quibble. The SCC raises serious ethical and equity questions. It places disproportionate costs on current generations—particularly lower-income households—while claiming to secure benefits for future generations that, by nearly all projections, will be far more prosperous alling behind—not just in energy production but in the ability to sustain a reliable and resilient economy.
Moreover, SCC estimates are based on global, not national, benefits. This means U.S. consumers are footing the bill for emissions reductions whose benefits overwhelmingly accrue overseas. With the U.S. now contributing just 13% of global emissions—a share that continues to decline because emissions from China and India continue to soar—it’s fair to ask what we are actually gaining in return for these higher costs. The answer is: nothing.
The models used to produce SCC values—Integrated Assessment Models (IAMs)—are riddled with assumptions. These range from the rate of technological progress to how farmers may adapt to rising temperatures. The underlying inputs are often unobservable or based on guesswork. Not surprisingly, SCC estimates range from below zero (implying net benefits from emissions) to over $1,000 per metric ton.
The variability of these estimates is a red flag. It indicates not analytical precision but the ability to manipulate outcomes to suit policy preferences. Rather than being a neutral guide, the SCC has become a policy cudgel—used to justify outcomes that are otherwise politically or economically untenable.
Instead of using SCC estimates to influence trillion-dollar decisions and massive subsidies for inferior forms of energy, we should focus on real-world energy priorities: abundant, affordable, reliable, and cleaner energy. This doesn’t mean climate change isn’t real. Instead, it means prioritizing R&D efforts on technological innovations—such as modular nuclear reactors and advanced geothermal—and removing the regulatory roadblocks that hinder their deployment.
The bottom line is this: while the SCC may sound scientific, its real-world implications are anything but theoretical. Placing blind faith in models built on assumptions stretching centuries into the future is a recipe for an energy and economic disaster Because sound energy policies must be grounded in empirical reality, not speculative abstractions.