Making the Social Cost of Carbon More Social

Article excerpt

On November 1, 2013, the White House released updated values for the "social cost of carbon" (SCC) to be used by various agencies when evaluating the benefits of emissions regulations, energy efficiency standards, renewable fuel mandates, technology subsidies, and other policies intended to mitigate global warming. Use of a uniform SCC reflects an effort to bring some consistency to a vast portfolio of different policies aimed at reducing carbon emissions from sources ranging from power plants, to cars, to household products.

Perhaps more significant than the updated SCC values themselves is the administration's commitment to seeking public comment on them. Until now, despite President Obama's commitment to "creating an unprecedented level of openness in Government," the administration has rebuffed requests to subject the SCC and its underlying models and assumptions to public scrutiny.

President Obama has publicly committed to addressing climate change through an ambitious regulatory agenda, to be undertaken by multiple federal agencies using a wide range of existing statutory authorities. While the merits of this climate agenda as a whole are debatable, the use of a unified SCC makes sense. The SCC summarizes into a single number (more properly, a range of numbers) a vast array of information derived from scientific and economic research and modeling. All of this information is subject to disagreement and the relationships embedded in the calculation of the SCC are extraordinarily complex, presenting a daunting challenge to anyone trying to arrive at a consensus figure. (See "Pricing Carbon When We Don't Know the Right Price," Summer 2013.) Nonetheless, it is worthwhile to try. To the climate, all carbon dioxide molecules look alike, so any cost-effective collection of carbon-reduction policies must have the same implicit marginal cost. The use of a consistent set of SCC values government-wide can discourage government agencies from trying to outbid each other in their efforts to save the planet, resulting in inefficient policy choices.

Need for comment/ The influential nature of the SCC value for a variety of future policies, as well as the difficulties and uncertainties of calculating the SCC, demand conscientious attention--including public comment and peer review--to the task of getting it right. Should benefits to other nations be included in the value? What is the appropriate discount rate for considering effects that may occur far in the future? What effects do different economic models and assumptions have on SCC values?

Rather than encouraging a robust discussion of these many important questions, last May the Obama administration quietly released a revised SCC as a "technical support document" (SCC-TSD) produced by an interagency working group. The Department of Energy relied on this revised SCC a month later to support a final regulation setting standards for microwave ovens. The May 2013 SCC of $41.1 per metric ton of carbon dioxide, which is almost double the value of $22.3 per metric ton that the DOE had used in its proposed rule, caused the department's estimate of the standard's benefits to increase by $438 million. …