Social Cost of Carbon
How Economists are Shaping the Regulatory
Landscape of Climate Change
Presented by:
Adam George, P.E.
TTL, Inc.
Note: This presentation is NOT a substitute for state or federal regulations
What is the “Social Cost of Carbon”?
According to the EPA, the Social Cost of
Carbon (SCC) is:
“an estimate of the economic damages associated with a
small increase in carbon dioxide (CO2) emissions,
conventionally one metric ton, in a given year. This dollar
figure also represents the value of damages avoided for a
small emission reduction (i.e. the benefit of a CO2 reduction).”
SCC History
• The SCC was created under the Administration of George W.
Bush after a court found the Administration’s fuel economy
standard invalid because it did not adequately address the
issue of damages associated with CO2.
• The Obama Administration launched an Interagency
Working Group (IWG) and updated the SCC in 2010, and
again in 2013 to reflect “improvements” in the models that
had been updated between 2010 and 2013.
What is the “Social Cost of Carbon”?
• Per Executive Order 12866 (10/4/1993, Clinton)
• Product of a 12 member Interagency Working Group
• Not an EPA rule
• No stakeholder input or peer review
• Not beholden to the legislative or rulemaking
process
Background
Executive Order 12866 – Regulatory Planning and
Review
• In deciding whether and how to regulate, agencies should
assess all costs and benefits of available regulatory
alternatives, including the alternative of not regulating. Costs
and benefits shall be understood to include both quantifiable
measures (to the fullest extent that these can be usefully
estimated) and qualitative measures of costs and benefits
that are difficult to quantify, but nevertheless essential to
consider.
Background
Interagency Working Group on Social Cost of Carbon
• Council of Economic Advisers*
• Environmental Protection Agency
• Council on Environmental
Quality*
• National Economic Council*
• Department of Agriculture
• Department of Commerce
• Office of Energy and Climate Change*
• Office of Management and Budget
• Department of Energy
• Office of Science and Technology
Policy*
• Department of Transportation
• Department of the Treasury
Background
Purpose of the IWG on Social Cost of Carbon
– To promote consistency in the way agencies calculate
social benefits of regulating CO2 by developing a range of
SCC values in a way that uses a defensible set of input
assumptions, is grounded in existing literature, and allows
key uncertainties and model differences to transparently
and consistently inform the range of SCC estimates used
in the rulemaking process.
What is the “Social Cost of Carbon”?
The SCC is an estimate of the monetized damages associated
with an incremental increase in carbon emissions in a given
year.
– Used in benefit-cost analyses to assess
benefits of potential federal rulemaking.
– To aide policy makers and regulators in
assessing the impacts of climate policy.
– Published SCC values are expressed in
2007 dollars.
– Published in 2010 and updated in 2013
What is the “Social Cost of Carbon”?
The SCC values are based on IAM model results, socio-economic
factors, and emissions estimates for a given year.
– Incorporates a 5%, 3%, and 2.5%
discount rate
– Also include a 95th percentile value for
“higher-than-expected” impacts
– “central value” $37 per metric ton
– Expressed as global value (benefit)
What is the “Social Cost of Carbon”?
What are these so called “damages” associated with increased
carbon emissions?
• Agricultural productivity
• Human Health
• Property damage from increased
flood risk
• Value of the Ecosystem
What is the “Social Cost of Carbon”?
Worst Case Scenario
•
•
•
•
•
Famine
Dislocation
Mass migration
Civil instability
Potential conflicts and even war!
What is the “Social Cost of Carbon”?
Haven’t we traditionally assessed the costs
and benefits of environmental regulations?
Yes
What is the “Social Cost of Carbon”?
How is this any different?
The Social Cost of Carbon value is assessed in
addition to the values derived from traditional cost
benefit analysis.
What is the “Social Cost of Carbon”?
What does this mean?
Regulatory actions that we previously considered not
economically viable can now be justified using the
social cost of carbon value.
What is the “Social Cost of Carbon”?
EPA/DOT GHG Emissions Standards for Light-Duty Vehicles
• Traditional cost-benefit analysis
– Cost $350 billion to industry and consumer
– Benefit $277 billion in reduced pollution, more energy security and less
congestion
– Net Loss $73 billion
What is the “Social Cost of Carbon”?
EPA/DOT GHG Emissions Standards for Light-Duty Vehicles
• Cost-benefit analysis w/ SCC
– Cost $350 billion to industry and consumer
– Traditional Benefit $277 billion - reduced pollution, more energy security
and less congestion
– Social Benefit $176 billion
– Net Benefit $103 billion
What is the “Social Cost of Carbon”?
What is the “Social Cost of Carbon”?
What is the “Social Benefit” of EPA’s Clean
Power Plan?
What is the “Social Cost of Carbon”?
Stated reductions in CO2 emissions range
from 600 million tons to 730 million tons
through the year 2030.
What is the “Social Cost of Carbon”?
Source (EPA FACT SHEET: Clean Power Plan BY THE NUMBERS)
What is the “Social Cost of Carbon”?
Source (EPA FACT SHEET: Clean Power Plan BY THE NUMBERS)
What is the “Social Cost of Carbon”?
Source (Clean Power Plan RIA)
What is the “Social Cost of Carbon”?
Source (Clean Power Plan RIA)
What is the “Social Cost of Carbon”?
Cost – Benefit Analysis of the Clean Power Plan
Year
SCC Benefit
Compliance Cost
$6,754,975,300
$7,400,000,000
$10,182,639,379
$5,500,000,000
230,769,231 Metric Tons @ $52/ton
$12,000,000,000
$8,800,000,000
Total
$28,937,614,679
$21,700,000,000
2020
157,092,449 Metric Tons @ $43/ton
2025
212,138,320 Metric Tons @ $48/ton
2030
Total Net Benefit
$7,237,614,679 (SCC RIA 2013)
What is the “Social Cost of Carbon”?
Cost – Benefit Analysis of the Clean Power Plan
Year
SCC Benefit
Compliance Cost
$4,084,403,670
$7,400,000,000
$6,152,011,291
$5,500,000,000
230,769,231 Metric Tons @ $32/ton
$7,384,615,385
$8,800,000,000
Total
$17,621,030,346
$21,700,000,000
2020
157,092,449 Metric Tons @ $26/ton
2025
212,138,320 Metric Tons @ $29/ton
2030
Total Net Loss
-$4,078,969,654 (SCC RIA 2010)
What is the “Social Cost of Carbon”?
I don’t burn coal.
So why should I be concerned?
What is the “Social Cost of Carbon”?
• The implications of applying the Social Cost of
Carbon are far reaching and pose a serious threat to
the economy.
• The Social Cost of Carbon has been used in
approximately 60 federal proceedings since 2010.
• Likely to be required on all projects on Federal Lands
and projects involving Federal dollars. (NEPA)
What is the “Social Cost of Carbon”?
The Social Cost of Carbon goes beyond EPA and the
traditional regulatory process and is being applied to
federal oversight at every level.
• May 31, 2013 - DOE bases new microwave oven efficiency
standards on revised SCC values.
– First time revised SCC value of $36 per ton is used in rulemaking
process.
What is the “Social Cost of Carbon”?
The Social Cost of Carbon is being considered by utility
commissions in rate setting and planning processes.
• June 10, 2014 - Minnesota Public Utility Commission voted to
adopt SCC values for assessing environmental damages
caused by power plants.
What is the “Social Cost of Carbon”?
The Social Cost of Carbon has been essentially
validated by the courts.
• June 27, 2014 West Elk Coal Mine in Denver Colorado– U.S.
District Court ruled that the project’s impact on climate should
be calculated using SCC.
• Bureau of Land Management must now disclose calculations
of SCC before auctioning mineral rights.
What is the “Social Cost of Carbon”?
Examples of Application of SCC to EPA Rulemaking
• EPA/DOT Rule for Light Duty GHG and CAFE Standards
• Amendments to Portland Cement NSPS
• Reconsideration Proposal for Boiler MACT
• Proposed NESHAP for Hg Emissions from Chlor Alkali Plants
• NSPS for Commercial and Industrial Solid Waste Incinerators
• Final MATS Rule
• EPA/DOT Rule for Medium and Heavy Duty GHG and CAFE Standards
• Proposed Clean Power Rule
• Proposed Rule for 2017 GHG and CAFE Standards
CONCLUSION
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QUESTIONS?
Adam George
[email protected] | 334-244-0766
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