The newly re-established White House Interagency Working Group (IWG) on social cost of greenhouse gases (SC-GHG) recently released interim estimates for the social cost of carbon (S-CO2), social cost of nitrous oxide (S-N20), and social cost of methane (S-CH4), collectively referred to as the SC-GHG, in accordance with President Biden’s directives set forth in one of his initial executive orders issued at the start of the new presidential term.
The SC-GHG is used by federal agencies in the regulatory cost-benefit analysis to justify certain executive actions, policy, and rulemaking. The values provide agencies with the social costs of increasing emissions, and the benefits of reducing such emissions by assigning a monetary value of the “net harm” to society associated with adding GHGs to the atmosphere in a given year. Federal agencies started to consider the SC-GHG following a 2008 U.S. Ninth Circuit Court of Appeals decision in Ctr. for Biological Diversity v. Nat’l Highway Traffic Safety Admin.
The cost is a projection of damages from a ton of GHGs emitted, and the interim estimates set the S-CO2 at $51 a ton, S-N2O is set at $18,000 a ton, and S-CH4 is set at $1,500 a ton. The newly released estimates are based upon the IWG’s use of a lower discount rate of 3 percent to account for the present value of damage from emissions, while still factoring in the future damages to agriculture, human health, and other market and non-market sectors. Due to the length of time over which damages are expected to occur, the discount rate significantly affects the present value of future damages (i.e., the lower the discount rate, the higher the value assigned to future damages). The decision regarding the appropriate discount rate is not without controversy as it implicates issues involving science, economics, ethics, and law. The discount rate used by the Trump Administration was 7 percent, which assigned a lower value to account for future damages of emissions.
President Biden also directed the IWG to publish interim estimates that account for global damages associated with the release of GHG, rather than limiting the estimation of such damages to solely the United States. The use of global damages in the analysis is meant to capture the global nature of GHGs, which can affect U.S. interests and citizens outside of the U.S. borders, and because climate change impacts that occur outside U.S. borders can directly and indirectly affect the welfare of U.S. citizens.
The new SC-GHG estimates will have an immediate impact in that federal agencies will have to account for a heightened standard of benefits to outweigh the increased costs associated with the release of GHGs in the approval of actions.
The published figures will be used on an interim basis while the IWG develops final estimates by January 2022, and provides its recommendations to the president by September 2021, in accordance with the timeframes prescribed in the executive order. Prior to finalizing the estimates, the IWG will be issuing a Federal Register notice soliciting public comments for which we can expect intense scrutiny from both sides of the political spectrum.