This post is based on an assignment we had to submit for API 165, Energy and Environmental Economics and Policy taught by Joe Aldy, on evaluating the Social Cost of Carbon (SCC) and Target-Consistent Pricing (TCP). 
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As the world continues to find ways for addressing the challenges of climate change, the debate around carbon pricing intensifies. Two key approaches dominate discussions: the Social Cost of Carbon (SCC) and Target-Consistent Pricing (TCP). Both frameworks offer valuable insights, but their underlying assumptions, methodologies, and conclusions diverge in important ways. In this post, I explore these two approaches, uncover their strengths and limitations, and suggest how we can move forward to design more effective climate policies.
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What Is the Social Cost of Carbon?
The Social Cost of Carbon (SCC) is a tool used by economists to put a price on the damages caused by emitting one additional ton of CO2 into the atmosphere. It essentially tells us how much climate change is going to cost society in terms of things like reduced agricultural productivity, increased mortality rates, and the destruction of property due to extreme weather events.
Governments and policymakers use SCC to evaluate the costs and benefits of climate policies. Integrated Assessment Models (IAMs), such as DICE, FUND, and PAGE, are the main tools for calculating SCC. These models try to balance the costs of reducing emissions with the economic damage caused by climate change (Pizer et al., 2014). While widely used, these models are often criticized for oversimplifying the complexities of climate change, particularly when it comes to dealing with uncertainty and catastrophic risks (Stern et al., 2022).

The Problem with Relying Solely on SCC
Despite its widespread use, the SCC approach has its shortcomings. One of the main criticisms is that it relies on "discount rates," which help economists figure out how much future climate damage is worth today. A high discount rate lowers the present value of future damages, which can justify weaker climate policies. On the other hand, a low discount rate places a higher value on future generations' well-being, supporting stronger action (Aldy et al., 2021). The debate around discount rates reflects deeper ethical questions about how we value the future and what kind of world we want to leave behind.
Another issue with SCC is the challenge of accounting for deep uncertainty. Climate change involves not only risks we can predict but also extreme events we can't foresee or quantify, such as catastrophic sea-level rise or the collapse of ecosystems. These "fat-tail" risks aren't adequately captured by traditional IAMs, which focus on expected utility and average outcomes (Stern et al., 2022). This means that SCC, in many cases, may underestimate the true risks of climate change.

A New Approach: Target-Consistent Pricing (TCP)
TCP, on the other hand, offers a more goal-oriented solution. Instead of trying to calculate the economic cost of each ton of CO2, TCP sets carbon prices based on what is needed to achieve a specific climate goal, such as net-zero emissions by 2050. Kaufman et al. (2020) propose the Near-Term to Net Zero (NT2NZ) approach, a specific type of TCP, which focuses on setting carbon prices that reflect the cost of staying within the near-term trajectory required to meet long-term climate targets. This approach is aligned with international agreements like the Paris Agreement, which seeks to limit global temperature increases to 1.5–2°C.
TCP has the advantage of providing policymakers with clearer, actionable guidance. Instead of dealing with the complexities of estimating long-term climate damages (which are subject to great uncertainty), TCP focuses on the immediate policy actions needed to meet specific climate goals.

SCC vs. TCP: Where Do They Diverge?
While both SCC and TCP aim to guide climate action, their methods and philosophies diverge significantly.

• SCC focuses on long-term optimization, trying to find the "right" carbon price by balancing the costs and benefits of climate policies. It asks, “How much damage will this extra ton of CO2 cause?”
• TCP, on the other hand, asks, “What carbon price will help us meet our climate targets?” It’s less about theoretical precision and more about practical action.

A major point of divergence is in how they handle risk and uncertainty. SCC calculations tend to underestimate the potential for catastrophic events by focusing on average outcomes, while TCP builds in a precautionary approach, recognizing the need to avoid critical climate thresholds at all costs (Kaufman et al., 2020).

Bridging the Gap: A New Way Forward
Both SCC and TCP have their strengths and weaknesses. SCC gives us a way to measure the economic impacts of climate change, but it’s riddled with uncertainties and ethical dilemmas. TCP is more pragmatic, offering a clear path to meeting climate goals, but it lacks the rigorous theoretical foundation of SCC.
To truly advance climate policy, we need to bridge the gap between these two approaches. One way forward is to integrate the best aspects of both: using SCC to inform the broader economic context while adopting the NT2NZ approach to set actionable, near-term targets. This hybrid framework could provide a more comprehensive roadmap for policymakers, balancing economic efficiency with the urgent need to tackle climate change head-on.
Conclusion
As we refine the ways we address climate change, it’s clear that no single approach can solve the problem. The Social Cost of Carbon offers valuable insights into the long-term economic damages of climate change, while Target-Consistent Pricing gives us a practical path forward. By combining these approaches, we can design more effective policies that not only optimize economic outcomes but also ensure we meet critical climate goals.
This is the challenge of our time: balancing the costs of today with the risks of tomorrow. And as we continue to refine these models, we must remember that the future depends on the decisions we make now.

References

• Aldy, J. E., Atkinson, G., & Kotchen, M. J. (2021). Environmental Benefit-Cost Analysis: A Comparative Analysis Between the United States and the United Kingdom. Annual Review of Resource Economics, 13(1), 267-288. https://doi.org/10.1146/annurev-resource-040821-045913​
• Kaufman, N., Barron, A. R., Krawczyk, W., Marsters, P., & McJeon, H. (2020). A Near-Term to Net Zero Alternative to the Social Cost of Carbon for Setting Carbon Prices. Nature Climate Change, 10, 1010-1014. https://doi.org/10.1038/s41558-020-0880-3
• OpenAI. (2024). ChatGPT (October 2024 version) for research and drafting assistance.
• Pizer, W. A., Adler, M., Aldy, J. E., Anthoff, D., Cropper, M., Gillingham, K., & Tavoni, M. (2014). The Social Cost of Carbon: Advances in Long-term Predictions. Science, 346(6214), 1189-1190. https://doi.org/10.1126/science.1255997
• Stern, N., Stiglitz, J. E., & Taylor, C. (2022). The Economics of Immense Risk, Urgent Action and Radical Change: Towards New Approaches to the Economics of Climate Change. Journal of Economic Methodology, 29(3), 181-216. https://doi.org/10.1080/1350178X.2022.2040740

Climate change is rapidly approaching dangerous thresholds, also known as tipping points, where the effects become irreversible and uncontrollable. 
What Are Climate Tipping Points?
Tipping points are thresholds in the climate system that, once crossed, lead to significant and often irreversible changes. These changes are nonlinear, meaning they accelerate rapidly and can spiral beyond the control of traditional climate mitigation methods. While the science surrounding tipping points is still evolving, emerging evidence suggests that certain critical thresholds, particularly in polar regions, may be crossed as early as mid-century. The Arctic and Antarctic are warming far faster than other parts of the globe, increasing the risk of catastrophic climate shifts.
Global Warming Trends:
Data from July 2024 shows that CO2 concentrations have reached 425.5 ppm, a 35% increase from pre-industrial levels (~280 ppm).
There was a brief pause in emissions during the 1950s and 2010s, but global greenhouse gas emissions continue to rise, with a slight decline noted in 2023. Yet, the Paris Agreement’s goal of limiting warming to 1.5°C is in doubt, with projections showing temperature anomalies of +2.7°C by 2090.
Carbon Removal Techniques:
The presentation outlines the importance of carbon dioxide removal (CDR) alongside solar geoengineering. Technologies like direct air capture, flue gas capture, and geologic sequestration are essential but currently operate at a minimal scale. Scaling these technologies is crucial to achieving net-zero emissions, but financial barriers remain significant.
Solar Geoengineering: A Controversial Potential Solution
Solar geoengineering has emerged as a potential tool to prevent these tipping points. The technique involves reflecting a portion of sunlight back into space, cooling the planet in the process. One of the most discussed methods is Stratospheric Aerosol Injection (SAI), which mimics the cooling effect seen after volcanic eruptions, where ash particles reflect solar radiation away from Earth.
Wake Smith advocates for more field research into solar geoengineering, despite its contentious nature. He argues that, given the increasing threat of near-term climate crises, this technology may provide humanity with a critical stopgap while longer-term solutions like decarbonization take effect.
The Science Behind Earth's Energy Imbalance
The fundamental driver of climate change is Earth's energy imbalance, which occurs when the amount of absorbed solar radiation exceeds the outgoing longwave radiation. This imbalance results in a net increase in global temperatures. Historical data (1860-2020) show a significant rise in global mean temperatures, and current projections indicate that temperatures will continue to increase unless global CO2 emissions reach net-zero by mid-century, followed by negative emissions later.
However, solar geoengineering is seen as a "peak-shaving" mechanism that could temporarily decouple rising emissions from rising temperatures, buying time for more permanent emission reduction strategies.
Challenges of Solar Geoengineering
While the potential of solar geoengineering is promising, its implementation faces significant technical and geopolitical hurdles. For example:

• Technical Feasibility: Current aircraft are not capable of deploying aerosols at the altitudes required for effective geoengineering. Research is ongoing into platforms like the SAI Lofter, which could theoretically carry 15 tons of materials to 20 kilometers above the Earth’s surface.
• Geopolitical Issues: The complexities of deploying solar geoengineering globally are immense. Only two countries—the U.S. and China—are considered capable of undertaking such a large-scale intervention, both in terms of technology and geopolitical influence. Coordinating a global response or agreement would be incredibly challenging.

Risks and Uncertainties
As with any climate intervention, solar geoengineering carries risks. Manipulating Earth’s climate systems could lead to unforeseen consequences, exacerbating the very issues it seeks to solve. Critics warn of hubris—attempting to "fix" the planet by further altering natural systems could create new, potentially worse problems. Moreover, political conflicts and diverging preferences between nations could intensify as the effects of geoengineering would not be evenly distributed across the globe.
The Case of the Atlantic Meridional Overturning Circulation (AMOC)
One of the most concerning tipping points is the potential collapse of the Atlantic Meridional Overturning Circulation (AMOC), a system of ocean currents that helps regulate the global climate. Wake discusses a study by Ditlevsen, P., & Ditlevsen, S. (2023), sharing key findings including:

1. AMOC Tipping Point: Recent observations and models indicate early warning signals (EWSs) of a potential AMOC collapse, with increased variance and autocorrelation in sea surface temperature data. This suggests that AMOC is losing resilience and approaching a critical transition.
2. Timing of Collapse: The paper estimates, with a 95% confidence interval, that the AMOC may collapse between 2025 and 2095, most likely around 2057. This prediction is based on statistical analysis and data-driven estimations using the AMOC's historical "fingerprint" from sea surface temperatures.
3. Risks of Collapse: A collapse of AMOC would drastically affect global climate patterns, particularly leading to more extreme weather events in the Northern Hemisphere and disrupting ocean circulation and heat distribution.
4. Model Uncertainties: While models provide robust predictions, uncertainties remain due to the complexity of AMOC's dynamics and the influence of factors such as freshwater influx and greenhouse gas emissions. The paper calls for more precise monitoring and data collection to refine predictions.

The Path Forward
Although solar geoengineering presents risks, it may offer a critical tool for preventing the worst effects of climate tipping points. Early deployment in the Arctic, where warming is most rapid, could provide valuable insights into the feasibility and consequences of this technology. Ongoing small-scale geoengineering tests, like those funded by the UK, aim to explore these risks in a controlled manner.
As climate tipping points draw closer, the need for innovative, even controversial, solutions like solar geoengineering becomes more urgent. Wake Smith's call for accelerated research into solar geoengineering reflects the growing recognition that traditional mitigation efforts may not be enough to stave off the most dangerous effects of climate change. However, the technical, political, and ethical challenges of geoengineering are immense, and caution is key as humanity considers interventions that could reshape our planet.

Reference: 
Ditlevsen, P., & Ditlevsen, S. (2023). Warning of a forthcoming collapse of the Atlantic meridional overturning circulation. Nature Communications, 14, 4254. https://doi.org/10.1038/s41467-023-39810-w
OpenAI, ChatGPT. (2024, September). Used for conversational assistance, providing summaries and enhancing the style of writing.
Smith, W. (2024, September 26). Climate Tipping Points and Solar Geoengineering. Presentation at the Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School, Cambridge, MA.