Internalization of the social cost of carbon in each of the countries of the world—An economic assessment of its impacts

Abstract

The internalization of the social cost of carbon (SCC) is the most efficient alternative to reduce the emissions that cause global warming. However, the carbon pricing initiatives implemented in many countries differ significantly from the empirical estimates of the SCC. Therefore, this study simulates the economic and environmental effects of internalizing the SCC in all the world’s nations through the environmental extension of a multi-regional input–output (MRIO) price model. The results show that the most affected countries economically are characterized by having an energy matrix with high participation of fossil fuels. In addition, there are relevant increases in the prices of energy and food, which are likely to raise poverty rates in low- and middle-income countries. It is concluded that the global emission reduction can vary between 5.1% and 50.3% depending on the SCC used, and only ten countries explain 77% of this reduction. In addition, global emissions reduction falls if data from a more recent base year is used, demonstrating that the structural transformations of the economy also strongly affect the impacts of carbon pricing. Finally, it is recommended that energy efficiency measures be incentivized to address partially this cost shock.