Last Friday, the Biden administration announced an interim update to the social cost of heat-trapping emissions, key metrics for measuring the economic costs of climate impacts from a unit increase in these emissions.
This update to the social cost of carbon dioxide, methane and nitrous oxide comes as a result of an Executive Order from President Biden, and essentially restores the values to what they were prior to the Trump administration, adjusting for inflation. A more thorough process will follow to update these values by January 2022 to reflect the latest science and economics.
What is the social cost of carbon?
The social cost of carbon (SCC) is a metric that helps quantify the costs of climate change related to our carbon emissions, in terms of dollars per metric ton of carbon dioxide (CO2) emitted. It can also be used to quantify the benefits of reducing carbon emissions. Similar metrics exist for the social cost of methane (CH4), or SCM and nitrous oxide (N2O), or SCN.
The social cost of carbon is used in cost-benefit analyses that agencies routinely undertake as part of the regulatory process. Cost-benefit analyses, which have been a feature of rulemakings since the Reagan era, are meant to weight the impacts of a regulation, including quantifying them where possible. Of course, health-based standards must be set based on public health criteria.
The role of cost-benefit analysis is to help evaluate options, not make threshold decisions about whether or not to regulate a harmful pollutant. For regulations that help cut heat-trapping emissions—either directly or indirectly—the benefits of these reductions are quantified by applying the dollar per ton estimate of climate damages avoided based on the relevant social cost of greenhouse gases.
Interim values for the social cost of greenhouse gases
The Interagency working group on the social cost of greenhouse gases (SC-GHG), just reconvened by the Biden administration, has issued an updated technical guidance document laying out the interim values.
- The new interim value for the social cost of carbon dioxide is $51/metric ton of carbon at a 3% discount rate and $76/metric ton at a 2.5% discount rate. (See the technical guidance document, Table ES-1 for a complete set of values from 2020-2050 in 2020 dollars.)
- The new interim value for the social cost of methane is $1500/metric ton at a 3% discount rate and $2000/ton at a 2.5% discount rate. (See the technical guidance document, Table ES-2, for a complete set of values from 2020-2050 in 2020 dollars.)
- The new interim value for the social cost of nitrous oxide is $18,000/metric ton at a 3% discount rate and $27,000/ton at a 2.5% discount rate. (See the technical guidance document, Table ES-3, for a complete set of values from 2020-2050 in 2020 dollars.)
The Trump administration’s attacks on the social cost of carbon
This interim step was necessitated by the Trump administration’s actions to dismantle the expert interagency working group on the social cost of greenhouse gases and drastically reduce the value of the SCC to approximately $1 to $6/metric ton of CO2, a fraction of the previous number.
These were purely ideological moves, wrapped up in false justifications. The intent all along was to weaken and undermine regulations aimed at cutting heat-trapping emissions by any means possible.
And this was part of a broader attack on cost-benefit analysis by the Trump administration, aimed at minimizing the public health benefits of cutting pollution and artificially magnifying the costs to polluters of curtailing those emissions.
In the last four years, that highly devalued, flawed SCC number was used in numerous regulatory processes. UCS worked closely with a coalition expertly led by the Institute for Policy Integrity at NYU to file comments in as many of these regulatory dockets as possible, getting on the record each time why the Trump admin SCC was so deeply flawed, so out of line with science, and how it needed to be fixed.
Progress on the science and economics behind the SCC
Despite the attacks on the SCC from the previous administration, researchers have continued to advance progress on incorporating the latest science and economics into assessments of the social cost of carbon. In 2017, the NAS published an important report, Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide, which laid out a new framework and a number of recommendations for improving the estimates for the SCC. Resources for the Future also launched an initiative involving scientists and economists to lay the groundwork for developing future estimates for the SCC.
Meanwhile, we have also continued to see the impacts and costs of climate change climb catastrophically, here in the US and around the world. In 2020 alone, the US experienced a record-setting 22 extreme weather and climate-related disasters that each cost at least a billion dollars.
The Biden administration has moved quickly to do away with the deeply flawed estimate in use for the last four years and restore the pre-2017 values. This means that federal agencies—and other state, local and private entities that rely on the federal estimates—can immediately start to use a better estimate to inform their actions.
However, this is just a first and basic step, restoring the previous values adjusted for inflation. It still means we are behind on reflecting current scientific knowledge in our policy decisions.
Now comes the crucial next step: an interagency process to actually do a thorough update to the SCC, SCM and SCN based on the latest science and economics. What’s clear is the number itself should be a lot higher, more on the order of $125/metric ton CO2, as the latest research shows.
We need to think carefully about the most appropriate discount rate to use to guarantee intergenerational equity, which should be a low or declining discount rate. We need to reflect new research with the latest estimates of climate damages to health, the economy, and ecosystems.
There’s no question, of course, that for these global pollutants, we must include a global estimate of damages to get the most accurate enumeration of the true costs climate change (and benefits of climate action) to guide our decision making.
As the interagency working group notes, its mandate is to “reflect the best available science and the recommendations of the National Academies and work towards approaches that take account of climate risk, environmental justice, and intergenerational equity.”
We can expect to see updated federal estimates for the SCC, SCM and SCN by January 2022, and then an ongoing interagency process to regularly update these metrics as the science advances.