1Background
The estimates of the social cost of carbon (SC-CO2), social cost of methane (SC-CH4), and social cost of nitrous oxide (SC-N2O) presented here allow agencies to incorporate the social benefits of reducing emissions of each of these greenhouse gases, or the social costs of increasing such emissions, in decision making. Collectively, these values are referenced as the “social cost of greenhouse gases” (SC-GHG) in this document. The SC-GHG is the monetary value of the net harm to society associated with adding a small amount of that GHG to the atmosphere in a given year. In principle, it includes the value of all climate change impacts, including (but not limited to) changes in net agricultural productivity, human health effects, property damage from increased flood risk natural disasters, disruption of energy systems, risk of conflict, environmental migration, and the value of ecosystem services. The SC-GHG, therefore, should reflect the societal value of reducing emissions of the gas in question by one ton. The marginal estimate of social costs will differ by the type of greenhouse gas (such as carbon dioxide, methane, and nitrous oxide) and by the year in which the emissions change occurs. The SC-GHGs are calculated along a baseline path and provide a measure of the marginal benefit of GHG abatement. Thus, they are the theoretically appropriate values to use when conducting benefit-cost analyses of policies that affect GHG emissions.[1]
1.1Overview of U.S. Government SC-GHG Estimates to Date
Estimates of the social cost of carbon and other greenhouse gases have been published in the academic literature for many years. Meta-reviews of SC-CO2 estimates were available as early as 2002 (Clarkson and Deyes 2002). Federal agencies began regularly incorporating SC-CO2 estimates in regulatory impact analyses in 2008, following a court ruling in which an agency was ordered to consider the SC-CO2 in the rulemaking process. The U.S. Ninth Circuit Court of Appeals remanded a fuel economy rule to the Department of Transportation (DOT) for failing to consider the value of reducing CO2 emissions, stating that “while the record shows that there is a range of values, the value of carbon emissions reduction is certainly not zero.”[2]
- ↑ These estimates of social damages should not be confused with estimates of the costs of attaining a specific emissions or warming limit. Specifically, there is another strand of research that investigates the costs of setting a specific climate target (e.g., capping emissions or temperature increases to a certain level). If total emissions are capped, IAM models can estimate the costs of limiting emissions or temperature increase to that cap. Similarly, other models simulate market trading in a cap and trade system. The price of a permit to emit one ton of carbon provides a measure of the marginal cost of GHG abatement, which can be useful in evaluating policy cost-effectiveness but is not an alternative way to value damages from GHG emissions in benefit-cost analysis. Moreover, a policy that specifies an environmental target implicitly requires a valuation of damages when setting the constraint even though it is not explicitly modeled or estimated. For example, a target set to keep temperature increases below a certain threshold implicitly places value on damages incurred beyond that threshold. For more on how these concepts (e.g., a predetermined target-based approach and a damage (SC-GHG) based approach) can be used when designing climate policy see, for example, Hansel et al. (2020) and Stern and Stiglitz (2021).
- ↑ Ctr. for Biological Diversity v. Nat'l Highway Traffic Safety Admin., 538 F.3d 1172, 1200 (9th Cir. 2008).
