The Biden Administration has promulgated interim figures for the social cost of carbon (SCC), which will support key policy efforts in the next year until a final, revised figure can be established.

As we noted in a prior post, the SCC is a concept, developed by the Obama Administration’s Interagency Working Group, that seeks to quantify the economic harm from climate and other impacts of greenhouse gas emissions by expressing a dollar value cost to society from a one metric ton increase in CO2 (or methane or nitrous oxide) emissions.  This is a complex task, as it seeks to quantify future impacts across human civilization, such as human mortality, depressed agricultural production, increased risk of conflict, property damage from extreme weather events, and the value of ecosystem services.  Although the Trump Administration continued to apply an SCC in agency decisionmaking, it relied on a revised methodology, which estimated the SCC to be roughly one-seventh of the cost estimated by the Working Group.

Biden’s interim SCC figures re-establish the Obama Working Group estimates, adjusting them only for inflation, resulting in an estimated cost per metric ton for current year emissions using a 3 percent discount rate of $51 for CO2, $1,500 for methane, and $18,000 for nitrous oxide.  The same policy decisions undergirding the Working Group SCC estimates, most notably the choice to take into account global, not just domestic, damages, remain in place.  Additionally, while the Trump Administration used two discount rates recommended by OMB’s Circular A-4 – 3 and 7 percent – Biden’s interim SCC figures revert to use of three discount rates – 2.5, 3 and 5 percent.

The reconvened Working Group also observes that new evidence on the consumption discount rate (based on the average rate of return on inflation-adjusted 10-year Treasury Securities) supports that the appropriate discount rate is notably lower than 3 percent.  The Interagency Working Group also observes that consideration of the uncertainty and ethics associated with discounting intergenerational impacts warrant consideration of discount rates below 3 percent, including 2 percent and lower.  As an interim recommendation, the Interagency Working Group urges agencies to consider conducting additional sensitivity analyses using discount rates below 2.5 percent.

An accompanying White House blog post signed by Heather Boushey of the Council of Economic Advisers (on behalf of the Interagency Working Group co-chairs) notes that “our understanding of the appropriate approach to discounting[] has advanced rapidly,” and that an upcoming Federal Register notice will invite comment on how to improve the government’s approach.  This is consistent with another of Biden’s day one orders which directed the Director of OMB to “identify ways to modernize and improve” the regulatory review process.

The Interagency Working Group will be working to provide a more comprehensive update by January 2022.  These new estimates could look quite different, as the current interim ones do not incorporate the recommendations of a 2017 report by the National Academy of Sciences.

As the Working Group progresses its efforts, expect future SCC estimates to take into account equity considerations, consistent with the President’s broader focus on environmental justice.  As noted in a recent panel discussion, one of the emerging frontiers in climate econometrics is demonstrating the disproportionate impacts that climate has on disadvantaged areas.  Biden’s day one executive order directed the Working Group to provide recommendations to revise SCC methodologies to take into account “environmental justice” and weigh these impacts to better steer federal decisionmaking; the accompanying blog post reaffirms this focus and commits the Working Group to engage “with the public and diverse stakeholders” to develop “stronger science-based estimates [] through a transparent and robust process.”

The SCC ultimately established by the Working Group may have spillover influence beyond US government benefit-cost analyses supporting rulemaking and environmental impact assessments.  Carbon markets, internal corporate carbon accounting, and investor expectations for net zero transformation strategies may all be impacted by the Working Group’s SCC estimates.  Accordingly, stakeholder engagement in the Working Group process is well warranted.

Print:
EmailTweetLikeLinkedIn
Photo of W. Andrew Jack W. Andrew Jack

Andrew Jack has a diverse corporate and securities practice with clients principally in the energy, industrial manufacturing, technology and sports and entertainment industries. He regularly represents corporations, board committees, and other forms of enterprises in mergers and acquisitions, strategic alliances, financing activities, securities…

Andrew Jack has a diverse corporate and securities practice with clients principally in the energy, industrial manufacturing, technology and sports and entertainment industries. He regularly represents corporations, board committees, and other forms of enterprises in mergers and acquisitions, strategic alliances, financing activities, securities law compliance, corporate governance counseling, and executive compensation arrangements. Mr. Jack also co-chairs the firm’s Energy Industry Group.

Photo of Kevin Poloncarz Kevin Poloncarz

Kevin Poloncarz represents a broad range of clients on policy, regulatory, litigation, commercial, and enforcement matters involving air quality, climate change, and clean energy. He co-chairs the firm’s Environmental Practice Group and Energy Industry Group.

Mr. Poloncarz is ranked by Chambers USA among…

Kevin Poloncarz represents a broad range of clients on policy, regulatory, litigation, commercial, and enforcement matters involving air quality, climate change, and clean energy. He co-chairs the firm’s Environmental Practice Group and Energy Industry Group.

Mr. Poloncarz is ranked by Chambers USA among the nation’s leading climate change attorneys and California’s leading environmental lawyers, with sources describing him as “a phenomenal” and “tremendous lawyer.” He was named an “Energy & Environmental Trailblazer” by the National Law Journal in 2017 and was inducted as a Fellow of the American College of Environmental Lawyers in 2018.

He has extensive experience with California’s Cap-and-Trade Program, Low Carbon Fuel Standard (LCFS), Renewables Portfolio Standard (RPS), and is recognized as a leading advisor on carbon markets. He also assists energy-sector clients in obtaining and defending state and federal approvals for major projects throughout California.

Mr. Poloncarz also assists clients with the development and execution of legislative and policy strategies supporting decarbonization, including carbon capture and sequestration, low-carbon fuels, advanced transportation and energy storage, and is a registered lobbyist in California and Oregon.

Photo of John Mizerak John Mizerak

John Mizerak is an associate in the firm’s Washington, DC office. He focuses on environmental matters as well as civil and administrative litigation, and has advised on issues under the Clean Air Act, Clean Water Act, CERCLA, and other environmental and energy regimes.