Social Cost of Carbon Gap: Why Carbon Markets Undervalue Emissions and Fail to Drive Decarbonization

A new analysis from ORF argues that carbon markets systematically fail by excluding the Social Cost of Carbon (SCC) from their pricing. Most emissions trading systems set carbon prices based only on abatement costs, not the full societal damage from each tonne of CO2. This creates a price-value mismatch that weakens the incentive to cut emissions and undermines the core purpose of carbon markets. The piece explains that when carbon prices do not reflect the SCC, markets cannot signal the true cost of emissions to investors or emitters. This means trading systems may hit short-term targets while still allowing long-term climate damage. The author suggests this gap amounts to a structural market failure that needs correction through updated pricing models. For anyone tracking carbon market design, this article provides a clear argument for why SCC integration matters. It connects economic theory to real-world policy gaps, making it useful for professionals in climate finance, ETS oversight, and regulatory reform.