ForestPaths researchers from the University of Edinburgh have published a study in the Climate Policy journal examining how current carbon prices correspond to implied climate impacts. The paper, titled “Implying climate impact from carbon prices and consumption,” takes a market-based approach to assess how the Effective Cost of Carbon (ECC) - the average price placed on carbon emissions - relates to projected global temperature increases. 

Traditionally, studies use the Social Cost of Carbon (SCC) to determine the damages caused by emitting one tonne of CO₂ equivalent (tCO₂e). The authors argue, however, that SCC estimates are not reliable because they depend heavily on long-term assumptions such as social discount rate. Instead, they propose focusing on actual carbon prices (the ECC) and their relation to future warming using the DICE 2023 integrated assessment model. 

Their findings show that the current global ECC is around $10 per tCO₂e - a level consistent with 3°C of global warming by 2100. To limit warming to below 2°C, as planned in the Paris Agreement, the global average price would need to rise to at least $85 per tCO₂e and continue increasing to $500 per tCO₂e by 2100. While high-income countries tend to have higher ECC, they also consume significantly more carbon per capita, making their overall climate impact disproportionately large. 

The study concludes that adequate carbon pricing must play a central role in achieving global temperature goals. Slower economic growth and decarbonisation subsidies alone will not be sufficient to meet the Paris Agreement target without a substantial and sustained increase in the cost of carbon. 

Read the full paper here.