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:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of W. Andrew Jack W. Andrew Jack

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with…

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with C-suites and boards. His practice spans mergers and acquisitions, strategic alliances and joint ventures, venture capital, capital markets, securities compliance, corporate governance counseling, crisis management and dispute settlements.

With deep experience in the energy, diversified industrials, transportation, technology, sports and hospitality industries, much of Andy’s recent transactional and advisory work focuses on issues arising from global sustainability trends and ESG considerations, including the energy transition, vehicle electrification and advanced mobility.

Some examples of this trending work include:

  • Energy
    • Structuring and negotiating joint ventures to produce sustainable aviation fuels and to develop and deploy shared resources to respond to offshore well blowouts.
    • Advising on a carbon capture project funded by the U.S. Department of Energy.
    • M&A, finance, capital raising and commercial projects for solar PV panel suppliers.
    • Representing corporate offtakers in virtual power purchase agreements to procure renewable energy in support of wind and solar power projects.
    • Advising on U.S. public policy matters affecting the energy transition.
  • Vehicle Electrification and Advanced Mobility
    • A capital markets transaction for an industry leader in advanced mobility.
    • Multiple venture capital financing rounds for an electric truck manufacturer.
    • Joint venture restructuring and M&A transactions for EV battery manufacturers.
    • Collaboration agreements among vehicle electrification technology providers and OEMs.
    • M&A of advanced vehicle components suppliers and engineering service providers.
  • Other industries
    • Advising on board governance structures to address ESG and Sustainability oversight.
    • Assisting clients in developing voluntary sustainability reports and improving SEC reports and proxy statements to address these topics.
    • Responding to shareholder proposals on various ESG issues.

Andy co-chairs the firm’s multidisciplinary global Energy Industry Group and multidisciplinary Sustainability Solutions Initiative. He also serves as pro bono outside general counsel to the American Council on Renewable Energy and as a member of the World Resources Institute Global Leadership Council. With this background and experience, Andy frequently speaks at industry conferences and publishes on these topics. He also serves as an editor of the firm’s Inside Energy & Environment blog

He is Chambers-ranked in Corporate M&A & Private Equity, where clients report that Andy “gives practical advice with commercially reasonable solutions to problems.” He also has been ranked in Legal 500, both for Energy – Renewable/Alternative and Mergers & Acquisitions.

Photo of Kevin Poloncarz Kevin Poloncarz

Kevin Poloncarz co-chairs the firm’s Environmental and Energy Practice Group, Energy Industry Group and ESG Practice.

Kevin is ranked by Chambers USA among the nation’s leading climate change attorneys and California’s leading environmental lawyers and by Chambers Global among the top climate change…

Kevin Poloncarz co-chairs the firm’s Environmental and Energy Practice Group, Energy Industry Group and ESG Practice.

Kevin is ranked by Chambers USA among the nation’s leading climate change attorneys and California’s leading environmental lawyers and by Chambers Global among the top climate change lawyers, with sources describing him as “exceptional,” “a superb attorney,” and “one of the most gifted advocates in this space in the country.”

He represents electric utilities, financial institutions, investors and companies in policy, litigation and transactional matters concerning power and carbon markets, carbon dioxide removal (CDR) technologies, carbon capture, utilization and storage (CCUS), sustainable aviation fuel, and clean hydrogen.

Kevin convenes the Energy Strategy Coalition, whose members include Austin Energy, Calpine Corporation, Constellation Energy Corporation, National Grid USA, New York Power Authority, NextEra Energy, Inc., Pacific Gas and Electric Company, and Sacramento Municipal Utility District. He also leads the Clean Energy Group, whose members include Austin Energy, Calpine Corporation, Consolidated Edison, Inc., Constellation Energy Corporation, Exelon Corporation, National Grid USA, New York Power Authority, Pacific Gas and Electric Company and Tenaska Energy, Inc. Both groups focus on federal environmental policy efforts affecting the power sector.

Kevin also teaches Climate Law and Policy at Stanford Law School.

Photo of John Mizerak John Mizerak

Jack Mizerak is special counsel in the firm’s Washington, DC office, focusing on environmental and product safety matters. He has experience with investigations, litigation, and regulatory issues under the Clean Air Act, the Motor Vehicle Safety Act, the Consumer Product Safety Act, the…

Jack Mizerak is special counsel in the firm’s Washington, DC office, focusing on environmental and product safety matters. He has experience with investigations, litigation, and regulatory issues under the Clean Air Act, the Motor Vehicle Safety Act, the Consumer Product Safety Act, the Clean Water Act, CERCLA, and other environmental, consumer protection, and energy regimes. Jack has particular expertise in environmental enforcement matters, including fact development, government engagement, and adoption of compliance reforms to address underlying issues and prevent recurrence of violations. He has extensive knowledge of the automotive sector, on both emissions and safety issues, including emerging regulatory trends for both zero emission powertrains and traditional internal combustion engines.