Obama Administration’s Changes to the Social Cost of Carbon for Regulatory Impact Analysis: Technical Support Document Under Executive Order 12866

Interagency Working Group on Social Cost of Carbon, United States Government

[InsideEPA.com, sub. req'd]  The Obama administration has significantly boosted the value it assigns to the social cost of carbon (SCC), in some cases doubling the $21-per-ton average it had previously assigned to the measure, an approach that will likely aid efforts to justify the costs of upcoming EPA greenhouse gas (GHG) rules as well as other measures that limit GHGs.

The White House quietly posted the May 2013 “Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis,” to its website and White House energy and climate advisor Heather Zichal noted in a May 31 blog post that the document was used for the first time to support a new Department of Energy (DOE) microwave efficiency rule…

[Brad Plumer in the WaPo] Last week, the Department of Energy announced a little-noticed update to its energy-efficiency standards for microwaves, requiring newer models to use less power in stand-by mode.

But there was a surprise buried in the fine print: The agency is now using a higher figure for the “social cost of carbon” in calculating the benefits of the rule. Instead of assuming that the harm caused by carbon-dioxide emissions comes to $22 per ton in 2013, regulators are now using a figure of about $36 per ton.

That’s a big shift — the Obama administration is effectively saying that climate change will be more damaging than previously estimated, in part because of the impacts of future sea-level rise. And that means U.S. government agencies could, in theory, justify even stricter regulations to curb greenhouse-gas emissions…

[The Institute for Energy Research]  …the estimate of the social cost of carbon (SCC) depends crucially on our framing decisions. In this respect, it’s not a natural constant such as the charge on an electron or the speed of light. No, the SCC for a particular year depends on how we deal with (a) the proper weighting of future events and (b) the proper weighting of uncertain events. Whichever computer simulation one uses to model the effects of carbon dioxide emissions, the vast bulk of damages to humanity occur many decades in the future. Therefore, to assess the monetary estimate today of these (far-distant) events, we need to figure out how much a dollar in damages in, say, the year 2075 should compare to a dollar today…

There are various pros and cons for using one discount rate versus another, but the important point is that the lower the discount rate, the higher the estimated SCC [social cost of carbon] will be…

…the Working Group has focused just on the worst 5 percent of computer scenarios, and then (using a 3 percent discount rate) tells us what the social cost of carbon would be. The alleged justification for this odd procedure is that the standard cost/benefit approach leaves humanity vulnerable to catastrophic risks. Regardless of what one thinks of this move, we should be clear that the Working Group is throwing out conventional cost/benefit analysis, in order to come up with much higher damage estimates…

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