The federal Office of Management and Budget (OMB) is now seeking public comment on how the United States government should calculate the “social cost of carbon” – the dollar figure used by federal agencies to estimate the harms associated with carbon dioxide (CO2) emissions and the benefits associated with reducing those emissions.  OMB’s request, published in the Federal Register on November 26, presents a unique opportunity to influence the development of federal environmental and energy-related regulations.

The social cost of carbon (SCC) is an estimate – created by an interagency workgroup in 2010 and updated twice in 2013 – of the economic damages associated with a one ton increase in CO2 emissions in specific years.   The SCC includes, for example, estimates of property damage from increased flood risks and estimates of the economic impacts associated with anticipated changes in agricultural productivity.  Federal agencies such as the Environmental Protection Agency (EPA) and the Department of Energy use the SCC to estimate the economic benefit of their regulatory actions.  Thus, the level at which the SCC is set can have profound implications for determining the net costs and benefits of proposed regulations.  The SCC may also have other uses as well, such as in evaluating the climate impacts of projects subject to review under the National Environmental Policy Act.

EPA and DOE have both received comments on their use of the SCC in connection with specific rulemakings.  But this opportunity to provide comments directly to OMB is a uniquely important one.  OMB oversees the major regulatory actions of all federal agencies.  Thus, its opinion about how to calculate the SCC is especially significant.

OMB’s request for comments is prompted by the release of a new technical support document which features minor revisions to the government’s May 2013 SCC estimates.  The new document explains that the SCC is based on three “integrated assessment models,” each of which is designed to estimate the economic damages associated with climate change.  OMB has asked for comments on:  (i) the government’s choice of models; (ii) the synthesis of the modeling results into the SCC; (iii) the manner in which the SCC estimates should be used in regulatory impact analyses; and (iv) the overall strengths and weakness of the government’s approach to calculating the SCC.  Implicit in those topics are other more technical questions, such as what discount rates the government should use to determine the present value of climate change-related damages that will occur far in the future, how the government should account for uncertainty in the modeling estimates and whether there are specific types of rulemakings for which the SCC should not be used.

What is the social cost of carbon, how should the government calculate it and are the government’s current estimates too high or too low?  Companies affected by federal energy-related regulations should seriously consider taking this opportunity to comment on those questions.  Comments are due to OMB by no later than January 27, 2014.

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