Step 5 — Policy Design
Select and calibrate the policy instruments that will drive emissions abatement. Carbon pricing, mandates, subsidies, and market mechanisms interact — set the package here before computing the technology gap in Step 7.
Carbon Pricing & Border Measures
Carbon Price Trajectory
Carbon Price Path 2025–2050
Regulatory Standards & Mandates
Energy & Transport Mandates
Subsidies & Green Procurement
Policy abatement total: — Gt/yr from active levers (before de-duplication)
Carbon Markets & Offsets
Voluntary Carbon Market Settings
Article 6.4 mechanism active
Corresponding adjustments required
High-integrity offsets only (CCB/Gold Standard)
Offset quality tier affects crediting ratio. High-integrity: 1:1 · Standard: 0.7:1 · Uncertified: 0.4:1
Carbon Market Trajectory
VCM volume forecast based on TSVCM (Taskforce on Scaling Voluntary Carbon Markets) growth path.
Compliance market includes EU ETS, California, China ETS, and emerging regimes.
Social Cost of Carbon — Cost of Inaction
SCC Frameworks — Annual Cost of Inaction
| Framework | Discount Rate | SCC ($/tCO₂) | × 52 Gt baseline | Annual Cost of Inaction | vs. Policy Cost |
|---|---|---|---|---|---|
| Nordhaus DICE-2023 | 4.25% | $3,083 | 52 Gt | $160.3T/yr | ≫ policy cost |
| Ramsey 2.5% | 2.5% | $5,946 | 52 Gt | $309.2T/yr | ≫ policy cost |
| Stern Review 1.4% | 1.4% | $10,190 | 52 Gt | $529.9T/yr | ≫ policy cost |
| US EPA 2023 (2%) | 2.0% | $190 | 52 Gt | $9.9T/yr | ≫ policy cost |
Higher discount rates underweight long-run damages and intergenerational equity (Stern).
The EPA 2023 revision raised the central SCC from $51 to $190, reflecting new climate science and lower discount rates.
Feeds into Step 6 (Technology Portfolio): policy abatement total reduces the technology gap to fill ·
Step 7 (Gap Accounting): carbon price and total abatement drive gap computation ·
Step 11 (Economic Cost): carbon price trajectory drives DSGE macro model