The Social Cost of Greenhouse Gas Emissions is About to Get Much More Expensive

Following an announcement at COP27 by President Biden, the EPA issued a supplemental proposal to reduce methane and other harmful emissions from new and existing sources in the oil and gas industry. In its regulatory impact analysis for the supplemental proposal, EPA included a sensitivity analysis detailing a revised methodology and new estimates for social cost of greenhouse gases (SC-GHGs), including carbon, methane, and nitrous oxide.

This proposal has caught the eye of many commentators, as EPA’s revised social cost of carbon (SCC) estimate of $190 per metric ton of CO2 is nearly quadruple the current interim SCC figure of $51. The current interim SCC figure was published by the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG), pursuant to Executive Order 13990, signed by President Biden in 2021. The increase from the interim figure is largely due to the application of a lower discount rate and improvements to the underlying science.

In addition to requesting public comment on the supplemental proposal, the EPA has announced a formal scientific peer review process for its proposed SC-GHG methodology. While the EPA does not establish federal SC-GHG estimates, EPA is a member agency of the entity that does–the IWG. These recent steps by EPA will play an important role in ongoing efforts by the IWG to publish final SC-GHG values, also pursuant to Executive Order 13990.

How were the new SC-GHG estimates calculated, and why did the SCC estimate nearly quadruple?

Building on recommendations by the National Academies of Science, Engineering, and Medicine in 2017, EPA’s new SC-GHG estimates were derived through an advanced model with four major steps:

  • Socioeconomic predictions – e.g., population and economic growth;
  • Global climate projections – e.g., temperature increase, sea level rise;
  • Economic damage projections – e.g., changes in national agricultural outputs and energy use due to climate impacts; and
  • Discounting – the weight of future climate impacts are converted into their present-day value through the application of a discount rate.

Using this approach, the EPA now estimates that the SCC is $190 per metric ton of CO2.

According to Resources for the Future, the increase from the interim value is primarily due to lowering the applied discount rate from 3% to 2%, meaning the agency gave greater weight to future economic impacts than was given to determine the interim figure. The increase is secondarily due to updated climate and economic damage projections, reflecting the latest research and expertise from relevant scientific disciplines.

The interim SCC value–and the use of SCC in federal rulemaking, generally–is subject to ongoing lawsuits by several Republican state attorneys general. To date, they have had very limited success (subscription required), but it’s important to note that the recent cases failed largely on the grounds that plaintiffs had not yet been harmed by the new SCC. The SCC remains potentially open to a challenge on the merits when applied in a particular case.

We’ll continue to monitor Interagency Working Group activities and other updates relating to the social cost of greenhouse gases.

About the Author

Josh RosenJosh Rosen is an associate at Foley Hoag, LLP. His practice focuses on energy and climate law, including regulatory, environmental permitting and compliance, due diligence, and transactional matters. Josh is a regular contributor to the Law & The Environment and Energy Climate Counsel blogs.

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