The objective of the report is to analyze the state of the scientific literature on the social cost of carbon in order to identify the best values recommended in the literature. The deliverable complements the chapter on the external cost of carbon emissions in the RSE 2021 report “Cost Factors for Evaluating Transportation Externalities in the Italian Context”, which summarizes in a single text the methodology developed by RSE for evaluating the external costs of transportation.

The Social Cost of Carbon (SCC) is the monetary value of the global climate damage that results from emitting an additional ton of carbon dioxide into the atmosphere. The SCC metric is critical in the transition to a net zero economy because it allows the costs of GHG mitigation investments to be matched with the benefits in terms of avoided climate damage. Given the need to update this metric on a regular basis, research on the SCC is essential to help governments and private companies efficiently size the spending commitments needed to mitigate and adapt to climate change.

The report applies a methodology to identify best estimates of SCC based on a stepwise approach to the topic, starting with literature reviews conducted in institutional settings (IPCC, OECD, US) and then analyzing reviews conducted in academic or research settings. This led to the identification of two proposed “best estimates”, both based on a meta-analysis of damage functions updated to 2016. Next, a number of more recent original studies were reviewed, selected from those highlighted as most important in the literature reviews, also in terms of their contribution to specific issues in advancing the calculation of the SCC.

Finally, the “best estimates” of the SCC that emerged from the analysis of the literature reviews were analyzed, discussed and revised to obtain a single estimate, taking into account the evidence emerging from the analysis of the most recent original academic contributions. The final proposal of the report includes three increasing functional relationships of the social cost of carbon for 2020-2050 emissions, differentiated according to three social discount rate options, including 3%, the rate currently recommended for the valuation of public works in Italy.