The Social Cost of Carbon - Essay Example

The adverse impacts may be in the form of poorer health outcomes, loss or harm to biodiversity, economic weakening of agricultural, timber, water and energy industries, as well as the loss or destruction of coastal resources. The important feature of these detrimental effects is that they are not borne by the immediate parties in any economic transactions. In economists’ terminology they are ‘externalities’; however, they are experienced by the wider society (Putnam, 2007). In choosing the carbon reduction policy to be implemented, the social cost of carbon can be used at least in theory, as an indicator of whether society would be benefited by using the policy.

Thus, if a social cost of carbon at £70 per tonne is accepted, a carbon reduction policy that reduces emissions at more than £70 per tonne would be rejected. However, the “social cost of carbon has been criticised as being too uncertain to provide the basis for policy decision making” (Putnam, 2007, p.28). It has been argued that it is not possible to monetarily assess climate change damage such as loss of ecosystems and large-scale population displacement, because of the difficulty in establishing the upper limit of the costs.

Hence, for policy decision making, a single financial evaluation of the social cost of carbon should be avoided. The Government and Committee on Climate Change is also required to include the factor of sustainable development, because an exclusive emphasis on carbon reduction may result in adverse outcomes in other environmental areas such as biodiversity. For example, it is essential to consider certain substitutions and transactions between “the need to reduce carbon emissions, the impacts on local wildlife, and the financial costs of minimising such impacts” (Putnam, 2007, p.28), when planning key renewable energy projects such as wind farms and tidal barrages.

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