Tamar Hallerman
GHG Monitor
6/7/13
The U.S. government quietly increased its estimates that weigh the future social and economic costs of emitting a tonne of carbon late last week, tweaks that could have a significant impact on the cost-benefit analyses federal agencies undertake to vet proposed rulemakings. The Interagency Working Group on Social Cost of Carbon, which consists of nearly a dozen federal agencies including the White House Council on Environmental Quality, Department of Energy, Environmental Protection Agency and Council on Economic Advisers, posted the updated modeling on the social cost of carbon (SCC) on the White House Office of Management and Budget’s website May 31.
The technical updates build off the government’s first analysis of the social cost of carbon from 2010, which establishes four sets of estimates for use in regulatory analyses, based on different sets of modeling and discount rates—or the values used to translate how much future damages that occur as a result of climate change will cost in today’s values. “Three values are based on the average SCC from three integrated assessment models, at discount rates of 2.5, 3 and 5 percent,” the updated analysis states. “The fourth value, which represents the 95th percentile SCC estimate across all three models at a 3 percent discount rate, is included to represent higher-than-expected impacts from temperature change further out in the tails of the SCC distribution.”
The updated estimates find that in 2007 dollars at a 3 percent discount rate—the median estimate listed—the social cost of carbon will be $43 dollars a tonne in 2020 and $71 in 2050. That is compared to $26.30 listed in the previous analysis for the year 2020 and $44.90 for 2050. The task force said the updated SCC estimates reflect the increasing impact of climate change and updated assumptions for factors like sea level rise and adaptation.
Future Monetized Damages
Federal agencies use the SCC estimates to take into account the future monetized damages associated with emitting a tonne of CO2 on future generations in a given year when assessing federal regulations. The metric specifically evaluates the social and economic impact of damages associated with climate change such as property damage from increased flood risk, changes in agricultural productivity and impacts on human health.
The changes could have an impact on upcoming carbon pollution rules from EPA. Since the updated SCC figures increase the value of future carbon emissions avoided, a rulemaking clamping down on CO2 emissions from the power sector, such as the EPA’s proposed greenhouse gas emissions performance standards for new fossil plants, would subsequently have higher benefits listed, making it easier for such standards to clear a cost-benefit analysis.
Are SCC Values Underestimated?
But some groups in the past have argued that SCC values still are not high enough. The Intergovernmental Panel on Climate Change has noted that it is likely that SCC values underestimate future damages since the modeling used to develop the figures often does not assign value to all of the physical, ecological and economic impacts of climate change. “It is very likely that globally aggregated figures underestimate the damage costs because they cannot include many non-quantifiable impacts,” the IPCC said in its highly-cited Fourth Assessment Report from 2007. “It is virtually certain that aggregate estimates of costs mask significant differences in impacts across sectors, regions, countries and populations. In some locations and amongst some groups of people with high exposure, high sensitivity and/or low adaptive, net costs will be significantly larger than the global average.”
A report co-authored by a Natural Resources Defense Council economist in the Journal of Environmental Studies last year said the government uses too high of a discount rate when calculating SCC estimates and subsequently underestimates the possible risks of climate change on future generations. The paper argues that the government should instead adopt a lower discount rate and that the SCC should fall somewhere between $55 and $266 per tonne of CO2, according to the study. A representative from one environmental group this week, though, did appear pleased with the recent changes. “The new cost of carbon figure is a welcome step forward, reflecting the latest versions of the underlying models,” Thomas Sterner, visiting chief economist at the Environmental Defense Fund, said in a blog post this week on the NGO’s website. “The bad news is that the increased number also shows that our lack of a comprehensive climate policy is becoming ever more costly.”
