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Jul
06

Estimating the Benefits from Carbon Dioxide Emissions Reductions

From: Office of Management and Budget | OMBlog

Posted by Howard Shelanski and Maurice Obstfeld

By now, just about everyone accepts that carbon dioxide emissions from burning fossil fuels are warming our planet and changing our climate in harmful ways.  With growing frequency we see headlines about extreme weather events such as heat waves, polar melting, severe drought, and violent storms—a dangerous mix whose costs for our economy and environment will only grow over time.  Transitioning to a lower carbon economy is an essential step toward reducing these costs. The social cost of carbon (SCC) is a tool that helps Federal agencies decide which carbon-reducing regulatory approaches make the most sense—to know which come at too great a cost and which are a good deal for society. The SCC is a range of estimates, in dollars, of the long-term damage done by one ton of carbon emissions.

The effort to incorporate the SCC into regulatory impact analysis started during the Bush Administration.  At that time, each Federal agency developed its own estimate of the SCC using a variety of methodologies. In 2009, the Obama Administration established a working group of technical experts from across the government to develop a single set of estimates, based on the best available science and economics, to be used by all agencies in their emissions reducing regulations. In February 2010, after considering public comments on interim values that agencies had been using, the working group released harmonized and improved SCC estimates, along with a Technical Support Document (TSD) that explained how the SCC estimates were derived. Recognizing that the underlying models would evolve and improve over time as scientific and economic understanding increased, the Administration committed to periodic updates of the 2010 estimates.

In November 2013, OMB published a request for comment on a set of updated SCC estimates and the methodology used to develop them, to supplement the comments already routinely received when agencies use the SCC in particular rulemakings.  In response, we received about 150 substantive comments, some quite lengthy and technical, as well as about 39,000 form letters that expressed support for our efforts to establish a harmonized SCC.

Today, we are following up on that public comment process and announcing next steps for further refining the social cost of carbon:

  • First, we are publishing a detailed summary and formal response to the many thoughtful comments we received.
  • Second, we are issuing some minor technical revisions to the SCC, and publishing a revised TSD that explains those changes. The resulting central SCC estimate for a ton of CO2 emitted in 2015 is $36.
  • Third, to ensure that the next SCC update keeps up with the latest available science and economics, we will seek independent expert advice on opportunities to improve the estimates, including many of the approaches suggested by commenters and summarized in the Response to Comments document. Specifically, we are asking the National Academies of Sciences, Engineering, and Medicine to provide advice on the pros and cons of potential approaches to future updates. Input from the Academies, informed by on-going public comment and the peer-reviewed literature, will help to ensure that the SCC estimates used by the federal government continue to reflect the best available science and economics. Federal agencies will continue to use the current SCC estimates in regulatory impact analysis until further updates can be made to reflect the forthcoming guidance from the Academies.

The SCC will become increasingly important if we are to protect our economy, environment, and quality of life for current and future generations from the mounting costs of climate change. The Administration is committed to ensuring consistency across Federal agencies in how they value the carbon emission reductions that will result from their rules.  We will continue to keep these estimates informed by the most up-to-date science and economics so that agencies can appropriately account for the social cost of carbon emissions in evaluating the costs and benefits of their regulations.

Howard Shelanski is the Administrator of the Office of Information and Regulatory Affairs. Maurice Obstfeld is a Member of the Council of Economic Advisers.

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