The Social Cost of Carbon
EPA and other federal agencies use the social cost of carbon (SC-CO2) to estimate the climate benefits of rulemakings. The SC-CO2 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).
The SC-CO2 is meant to be a comprehensive estimate of climate change damages and includes changes in net agricultural productivity, human health, property damages from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. However, given current modeling and data limitations, it does not include all important damages. The IPCC Fifth Assessment report observed that SC-CO2 estimates omit various impacts that would likely increase damages. The models used to develop SC-CO2 estimates, known as integrated assessment models, do not currently include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature because of a lack of precise information on the nature of damages and because the science incorporated into these models naturally lags behind the most recent research. Nonetheless, the SC-CO2 is a useful measure to assess the benefits of CO2 reductions.
The table below presents the current SC-CO2 estimates for certain years.
|Discount Rate and Statistic|
|Year||5% Average||3% Average||2.5% Average||3% 95th percentile|
a The SC-CO2 values are dollar-year and emissions-year specific and have been rounded to two significant digits. The 2007$ estimates were adjusted to 2010$ using GDP implicit price deflator (108.289) from the National Income and Product Accounts Tables, Table 1.1.9.
EPA has used the SC-CO2 to analyze the carbon dioxide impacts of various rulemakings since the interagency group first published SC-CO2 estimates in 2010 (PDF, 51 pp, 847 KB). Some of these rulemakings have directly targeted carbon dioxide emissions, such as the car and truck standards, whereas others have set standards for conventional or toxic pollutants that indirectly affect carbon dioxide emissions, such as the final rulemaking to control mercury and other air toxic pollutants (PDF, 510 pp, 8.3 MB) from power plants. The rulemakings directly targeting carbon dioxide emissions have projected notable climate-related benefits for society. For example, the projected net present value of carbon dioxide mitigation benefits over the next forty years from three vehicle rulemakings was estimated to range from $78 billion to $1.2 trillion ($2010), depending on which of the four SC-CO2 estimates were used (i.e., the average SC-CO2 at 5, 3, and 2.5 percent and the 95th percentile SC-CO2 at 3 percent). These three rulemakings are:
- The Joint EPA/Department of Transportation Rulemaking to establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards (2012-2016) (PDF, 474 pp, 5.89 MB)
- Joint EPA/Department of Transportation Rulemaking to establish Medium- and Heavy-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards (PDF, 553 pp, 9.12 MB)
- Joint EPA/Department of Transportation Rulemaking to establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards (2017-2025) (PDF, 555 pp, 8.83 MB)
For more information see the SC-CO2 Fact Sheet (PDF, 5 pp, 266 KB), as well as the Office of Management and Budget's (OMB) SC-CO2 site, which presents the OMB response to the public comments received through its solicitation for comments on the SC-CO2 site estimates used in Federal regulatory analyses. In this response, OMB announced plans to obtain expert, independent advice from the National Academies of Sciences, Engineering, and Medicine on how to approach future updates to the estimates.
See also the following documents for information about ongoing research to improve the SC-CO2.
- EPA and Department of Energy hosted a series of workshops to inform SC-CO2: workshop one, workshop two.
- EPA funded a workshop on discounting, a critical SC-CO2 modeling input. World-recognized experts discussed how the benefits and costs of regulations should be discounted for projects with long time horizons.
EPA has also estimated the benefits of reductions in non-CO2 greenhouse gas emissions, notably methane, in the regulatory impact analysis for recent rulemakings, such as the Regulatory Impact Analysis of the Proposed Emission Standards for New and Modified Sources in the Oil and Natural Gas Sector (see RIA Chapter 4 (PDF, 208 pp, 1.4 MB)). In this regulatory impact analysis, EPA used directly modeled estimates of the social cost of methane (SC-CH4) from a paper recently published in the peer reviewed literature (Marten et al. 2014 , 2015 ). The SC-CH4 estimates in the Martin et al. paper were developed using methods that are consistent with the methods used to estimate the SC-CO2. Consistent with EPA's peer review guidance, the Agency conducted a peer review (PDF, 27 pp, 1.1 MB) of the application of the Marten et al. (2014) non-CO2 social cost estimates in regulatory analysis and received responses that supported this application.