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03.15.2021 Biden Climate Work Group Reverts to Obama Social Costs of Carbon By: John M. "Jay" Holloway, III

Arguably, the Social Cost of Carbon (SCC) is one of our society’s most important numbers. The SCC is used in all climate decisions and will now be considered in all significant governmental decisions and federal actions. How this number will be recalculated is the subject of fierce debate.  Politico recently noted that “A high cost of carbon would make it easier for the administration to justify expensive or restrictive regulations as it works to green the economy—spend this money now, because it will cost a lot more later if we don’t. Set the price too high and the economy might not react well. It’s classic cost-benefit stuff, but big.”

The SCC was the foundation of the Obama Administration’s Climate Strategy. These values were calculated to attribute global cost and benefits to each ton of CO2 emissions. These costs and benefits drove efforts like the Clean Power Plan that sought to retire all existing coal-fired electric generating units or force installation of costly and potentially technically probative retrofits like carbon capture and sequestration (CCS). The application of SCC is not limited to rulemaking, it can be applied to almost all government decisions and actions.   

The calculation of SCC is not straightforward. In 2016, an Interagency Working Group (IWG) on the Social Cost of Greenhouse Gases (GHGs) issued updated guidance incorporating technical analyses recommended by the National Academy of Sciences, Engineering and Medicine. The result of this additional analysis was the recommendation by the IWG that the SCC to be used in regulatory analyses should comprise a range of estimates of the long-term damage done by one ton of CO2 emissions measured in dollars. The analysis also added cost impacts for methane and nitrous oxide, both of which are also GHGs. This update chose not to conduct a near term update to the SCC but instead opted to analyze the characteristics of uncertainty around the SCC impacts over decades and even centuries and incorporate these “enhancements.”

The analyses of impacts from methane and nitrous oxide were conducted using the same methodology as the SCC but factored in the finding that a ton of methane has some 25 times the warming potential as a ton of CO2 and nitrous oxide 300 times the warming potential.  These were used to calculate the Social Cost of Methane (SCM) and social cost of nitrous oxide (SCN).

One of the first Executive Orders (EO) signed by President Trump suspended the IWG stating that SCC cost calculations were not representative of government policy (EO 13783). Despite this order, the basic SCC methodology did not really change. The only changes were to calculate the impacts only to the United States and use a higher discount rate (3 and 7 percent rather than 2.5, 3, and 5 percent). Here are the differences in values:

Prior and Current Federal Estimates of the Social Cost of Carbon, per Metric Ton, at a 3 Percent Discount Rate in 2018 U.S. Dollars

Year of emissions

Prior estimates (based on global climate change damages)

Current estimates (based on domestic climate change damages)

2020

$50

$7

2030

$60

$8

2040

$72

$9

2040

$82

$11

Source: GAO analysis of data from the Interagency Working Group on Social Cost of Greenhouse Gases, EPA, and the United States Gross Domestic Product Price Index from the U.S. Department of Commerce, Bureau of Economic Analysis.  | GAO-20-254

Consistent with the Obama Administration, the Trump Administration used the revised lower SCC values to drive policy on CO2 emissions like the Affordable Clean Energy rule.

One of the EOs signed by President Biden on Inauguration Day is entitled “Protecting Public Health and Environment and Restoring Science to Tackle Climate Crisis.” This EO recreates the IWG on SCC. The members of the new IWG are high level federal agency appointees. This IWG was tasked to publish interim SCC, SCN and SCM within 30 days of the signing of the order (February 19, 2021) and in final by January 1, 2022.  The other task of the new IWG is to recommend internal government processes  to which the SCC, SCN and SCM should apply.

Instead of publishing new interim SCC, SCN and SCM values on February 19, 2021, the Council of Environmental Quality (CEQ) published a Notice of recission of draft guidance (Notice). The Notice cites a section of the new EO directing CEQ to rescind the Trump Administration SCC guidance and review, revise and update the Obama Administration SCC guidance, and rescinds the Trump Administration guidance. Going forward the CEQ was to address appropriate updates and revisions to the 2016 guidance in a separate notice and review. In the interim agencies should “consider all available tools and resources in assessing GHG emissions and climate change effects of their proposed actions, including, as appropriate and relevant, the 2016 GHG Guidance.”

On February 26, 2021, the White House issued interim SCC per the EO. The new SCC are actually the old Obama values in 2020 dollars.

  • SCC $51 at a 3% interest rate
  • SCM $1,599 at a 3% interest rate
  • SCN $18,000 at a 3% interest rate
     

Far from taking the kind of step forward on the integration of SCC and the costs of GHGs into all government decision making, the Administration merely removes the Trump Administration roadblock, allowing the Obama values to remain in place. The new IWG will now embark on the process of developing final values by January 1, 2022. The Climate lawyers at Williams Mullens will track this effort and all other aspects of developing climate policy, regulations and federal actions very closely and provide real-time updates and analyses.

These companies need your garbage, Politico (February 23, 2021)

Social Cost of Carbon, Government Accountability Office (June 2020)

Strengthening Tools to Account for Damages from Greenhouse Gas Emissions in Regulatory Analysis, Obama White House (August 26, 2016)

Promoting Energy Independence and Economic Growth, Obama EO 13783 (March 28, 2017)

Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis, Biden EO (January 20, 2021)

 

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