PNNL

Abstract

The social cost of carbon (SCC) is often described as the “optimal” CO2 price, and it is used as such in carbon taxes and clean energy subsidies. However, SCC estimates span virtually any conceivable policy stringency level, which does not provide practical assistance to policymakers setting CO2 prices. This paper introduces the Near-term to Net Zero (NT2NZ) approach, which estimates the CO2 prices needed in the near-term, alongside a broader policy strategy, to achieve an emissions pathway consistent with a net zero CO2 emissions target. Policymakers can select an emissions pathway that imperfectly balances the benefits and costs of emissions reductions and use NT2NZ CO2 prices to achieve that pathway cost-effectively. The NT2NZ approach enables the use of multiple policies to address the multiple market barriers preventing emissions reductions, and it is consistent with the emissions target-focused approach that frames climate policy discussions around the world. We also provide illustrative estimates of NT2NZ CO2 prices for the United States. Across our scenarios with a 2050 net zero CO2 emissions target, we find NT2NZ CO2 prices of $34 to $64 per metric ton in 2025 and $77 to 124 in 2030.