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November 15, 2013
Comments invited on social cost of carbon

The federal Interagency Working Group on Social Cost of Carbon (IWG) has made minor technical adjustments to its May 2013 estimates of the per-ton cost of CO2 emissions through 2050.  Perhaps more importantly, the White House Office of Management and Budget (OMB) announced that it will invite public comment on the new social cost of carbon (SCC) estimates in a Federal Register announcement. 

Federal agencies such as the EPA have used the SCC to analyze the CO2 impacts of various rulemakings.  In general, the higher the estimates of the future SCC estimates, the stronger the rationale for issuing regulations today to limit CO2 emissions.

Discount rates

After release of the May Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis, some congressional lawmakers claimed that in developing the estimates, the IWG made use of unacceptably low discount rates, which resulted in a much higher SCC than the IWG estimated in its initial analysis in 2010.  While the lawmakers and other skeptics are not likely to be mollified by the $1 adjustments in SCC values in the revised document, the IWG will now be compelled to respond to specific comments about its process for developing the values. 

In its 2010 analysis, the IWG calculated the social cost of 1 ton of carbon in 2020 at $7, $26, $42, and $81 (2007$) based on averages derived from three integrated assessment models (IAMs) and different discount rates. 

Discount rate is a key factor in projected SCC values.  High discount rates translate into less spent today to avoid X amount of damage in the future.  As lower discount rates are used in the IAMs, the amount spent today gets closer to the value of the damage avoided in the future.  When assessing national benefits for a given program 30 years in the future, a decrease in a few percentage points can mean billions of dollars more in costs today.  The IWG’s May 2013 analysis used improved modeling and four discount rates from 2.5 percent to 5 percent to arrive at SCC values of $12, $43, $65, and $129 (2007$) in 2020; as noted, the technical update changes some of the estimates by no more than $1.

Moreover, in its own discussion of the SCC, the EPA refers to the Fourth Assessment Report of the United Nation’s Intergovernmental Panel on Climate Change, which stated that it is “very likely that [SCC] underestimates” the damages.  “The models used to develop SCC estimates do not currently include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature because of a lack of precise information on the nature of damages and because the science incorporated into these models naturally lags behind the most recent research,” explained the EPA.

Lack of transparency

But in a letter to administration officials who are members of the IWG, seven Republican senators criticized the discount rates used in the analysis, particularly the absence of a 7 percent rate.  The letter points to an OMB circular that specifies that discount rates of 3 percent and 7 percent should be used in regulatory analyses.  The senators also expressed concerns about the “lack of openness and transparency throughout this Administration.” 

The senators then requested answers to questions about the data, documents used in the SCC analysis, and whether any nonfederal personnel participated in the IWG discussions or provided input into the process.

In a blog accompanying the recently revised SCC analysis, Howard Shelanski, administrator of OMB’s Office of Information and Regulatory Affairs (OIRA), notes that the May 2013 estimates represent the “best available science and data on the economic impacts on society of climate change.”  The May 2013 estimates reflect values similar to those used by other governments, international institutions, and major corporations, Shelanski adds.  Moreover the estimates have been “out for public comment in several proposed rulemakings since May,” says Shelanski, and agencies have already received comments that are under review.

“At the same time, in response to public and stakeholder interest in SCC values, [the OIRA] will provide a new opportunity for public comment on the estimates,” says Shelanski.

November 2013 technical update of the SCC analysis

Senate letter regarding the analysis

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