What is the social price of carbon?
The carbon price is an economic tool that assigns a monetary value to greenhouse gas (GHG) emissions, usually expressed in USD per metric ton of carbon dioxide equivalent (USD/tCO₂e). This price aims to reflect the social cost generated by these emissions in terms of climate impacts, health, agriculture, and economic damages.
Assigning a carbon price helps internalize externalities, align public and private investment decisions with environmental objectives, and foster a transition toward a low-carbon economy.
Markets and carbon pricing
1. Voluntary carbon offset/credit market
This market allows companies and organizations to offset their emissions by purchasing carbon credits generated by projects — from reforestation to energy efficiency — that reduce or remove GHGs. Credit buyers include multinational corporations with net-zero targets, exporters, NGOs, and investment funds interested in sustainability and environmental reputation.
According to the State of the Voluntary Carbon Market 2024 report by Forest Trends:
- The average price of credits was USD 6.53/tCO₂e in 2023.
- Credits with co-benefits (e.g., biodiversity, health) averaged USD 8.11/tCO₂e.
- Removal credits (vs. reduction) reached USD 15.91/tCO₂e, reflecting a willingness to pay more for solutions with direct carbon capture impact.
SERFOR refers to the average credit price of USD 6.53/tCO₂e for its deforestation permit calculations.
2. Regulated and Futures Markets
In parallel, regulated markets such as the EU ETS have shown higher prices. In 2022, the price of emission permits peaked above EUR 100/tCO₂e, and currently stands around EUR 70/tCO₂e, as shown in Graph 1.
Fuente: Trading Economics (2025)
These markets, principally driven by regulations in the European Union, provide a more robust environment for industrial sector decarbonization. Emission futures are mainly acquired by:
- Regulated companies (e.g., power generators or cement producers) required to meet emission quotas.
- Investment funds and banks, acting for speculative or hedging purposes.
- Companies with net-zero goals, preparing for future compliance.
- Carbon intermediaries, providing liquidity and trading these instruments on platforms such as ICE or EEX.
Estimates in the Peruvian Context
1. MEF proposal (2023)
Peru’s Ministry of Economy and Finance (MEF, 2023) has established a social cost of carbon of USD 7.17/tCO₂e, based on a study by the Research Center of Universidad del Pacífico (CIUP, 2016). The estimate was derived using the DICE model calibrated to the national context. This value is applied in the socio-economic evaluation of public investment projects under Invierte.pe, and is also referenced in the development of Environmental Impact Assessments (EIA). The CIUP (2016) study details the methodological considerations used to reach this estimate.
2. CEPAL recommendation (2024)
CEPAL recommends applying a social cost of carbon of USD 30/tCO₂e. Its approach is to establish a price that is consistent with the optimal pathway to achieve defined climate goals, such as reaching carbon neutrality by 2050. Furthermore, it advocates for a price trajectory over time that enables compliance with the Paris Agreement targets. This is a normative price, derived from the analysis of technological and emissions trajectories compatible with the Paris Agreement. It is particularly useful for guiding public policy planning, budget allocation, and project evaluation within the framework of national or international climate goals.
Conclusion
The carbon price is neither a single nor a universal value. Depending on the policy objective—whether to mitigate future damages, meet climate goals, or align investment decisions—the appropriate price may vary. Likewise, the economic context matters: in low-carbon-intensity economies, a lower price may be suitable, whereas in countries with more emission-intensive production structures, higher prices are justified to induce substantial change.
Recognizing this diversity is key to designing effective strategies that are tailored to each country’s specific realities.
Additional note (21/May/2025):
I was made aware by a colleague that the Peruvian government has adopted the value suggested by CEPAL of USD 30/tCO₂e in late march 2024 for project and policy evaluation.
References
- MEF, 2023, Nota Técnica para el uso del Precio Social de Carbono en la Evaluación Social de Proyectos de Inversión en tipologías.
- CIUP, 2016, Estimación del precio social del carbono para la evaluación social de proyectos en el Perú.
- CEPAL, 2024, Cálculo del Precio Social del Carbono para el Perú.
- Forest Trends, 2024, 2024 State of the Voluntary Carbon Market.
