Responses to common (but misguided) critiques of the SCC from opponents of climate policy

Aren’t there benefits of greenhouse gas emissions?

There are, and some of these benefits, such as potential increases in agricultural yields, are captured in the SCC estimate. These benefits reduce the magnitude of the SCC. Other benefits of climate change are omitted, including the lower cost of supplying renewable energy from wind and wave sources, the increased availability of oil due to higher temperatures in the Arctic, and fewer transportation delays from snow and ice. However, omitted negative impacts clearly exceed omitted benefits. 1 Taken as a whole, therefore, omitted impacts reduce (and don’t inflate) the SC-GHG value.

The other benefits from the use of fossil fuels that are unrelated to climate change (such as economic output) are omitted from the SC-GHG, but they are typically included in any analysis in which the SC-GHG is used. This is because in a benefit-cost analysis, the cost of regulations, such as the potential loss of output, is always balanced against the benefits of greenhouse gas reductions.

Isn’t there too much uncertainty around the SCC to use it?

Absolutely not. As a legal matter, the presence of some uncertainty in the SC-GHG should not preclude agencies from using the numbers that are available. And as a factual matter, the IWG rigorously considered uncertainty and accounted for it in numerous ways. If anything, the presence of continued uncertainty suggests that the SC-GHG should be higher than presently valued—not that climate damages should be ignored.

Federal courts have repeatedly recognized that agency analysis necessitates making predictive judgments under uncertain conditions, explaining that “[r]egulators by nature work under conditions of serious uncertainty” 261 and “are often called upon to confront difficult administrative problems armed with imperfect data.” As the Ninth Circuit has explained, “the proper response” to the problem of uncertain information is not for the agency to ignore the issue but rather “for the [agency] to do the best it can with the data it has.” In the context of the SC-GHG specifically, the Ninth Circuit has held that although “a range of values” are plausible, “the value of carbon emissions reduction is certainly not zero.” 3 

Moreover, experts broadly agree that the presence of uncertainty counsels for more stringent climate regulation and higher SC-GHG values. This is due to various factors including risk aversion, the informational value of delaying climate change impacts, and the possibility of irreversible climate tipping points that cause catastrophic damage. The integrated assessment models underlying the IWG’s estimates underestimate the impact of uncertainty by ignoring fundamental features of the climate problem, such as: the irreversibility of climate change, society’s aversion to risk and other social preferences, and many catastrophic impacts.5  These models also omit many key climate impacts, such as the costs of increased wildfire.  

Thus, while there is uncertainty around the SC-GHG value, this uncertainty counsels for proper attention to climate impacts and caution around them—not ignoring them entirely.

Didn’t the noted economist Robert Pindyck say the SCC numbers were flawed?

Not really, because he actually wants higher numbers. Robert Pindyck wrote a brief article 8 and released a working paper 9 shortly after the 2013 update to the IWG’s SCC estimates, in which he criticizes the IWG’s methodology . However, Pindyck actually advocates for an even higher SCC. He says: “My criticism of IAMs should not be taken to imply that because we know so little, nothing should be done about climate change right now, and instead we should wait until we learn more. Quite the contrary.” He goes on to explain that being proactive will benefit society in the long term. “One can think of a GHG abatement policy as a form of insurance: society would be paying for a guarantee that a low-probability catastrophe will not occur (or is less likely).” 10 

Pindyck actually enforces the idea discussed above—namely that the uncertainty underlying the SCC is no reason to not use the IWG estimates, but rather that decisionmakers who are interested in taking into account the climate effects of particular options should use the SCC as a starting point. In fact, Pindyck’s own best estimate of the SCC is between $80 to $100, and goes up to $200. 11 Many groups cite Pindyck when criticizing the SCC, but fail to mention that his conclusion actually supports a robust accounting of climate effects in decisionmaking. In other words, the best critic of the IWG’s methodology that opponents of climate reforms could find considers them to be conservative underestimates of the true cost to society of greenhouse gas emissions.

Isn’t it inappropriate to measure the SC-GHG globally for a national, state, or even local policy?

Considering global damages, as opposed to disregarding all climate effects outside U.S. borders, is appropriate and desirable for numerous reasons. As the IWG has explained, using global damage costs reflects U.S. strategic interests by facilitating international reciprocity, and it is methodologically superior to a domestic-only estimate due to the presence of international spillovers and the limitations of existing models. Additionally, various environmental statutes—most notably, the National Environmental Policy Act—required consideration of international welfare. 

Courts have agreed that it is appropriate to evaluate climate damages from a global perspective. In 2016, the U.S. Court of Appeals for the Seventh Circuit held that federal agencies may reasonably rely on the IWG’s global valuations in policymaking. And in 2020, the U.S. District Court for the Northern District of California struck down an agency regulation that considered climate impacts only that occur within U.S borders, holding that a global focus is critical to reliably assess climate impacts.

Shouldn’t the SC-GHG be calculated using higher discount rates that reflect market returns to capital?

Economists reject this approach. For policies that affect society broadly, discount rates should reflect the social time preference rather than the private return to capital—which reflects private benefits such as a risk premium and private returns from externalities and market power. Using capital-based discount rates, such as a 7 percent, almost entirely devalues impacts that occur more than a few decades into the future. In effect, using them in this context would mean that we place essentially no value on climate impacts that will fall on future generations. 

Surveys of economic experts exhibit broad support for using discount rates of 2 percent or lower when assessing the SC-GHG—and the use of a declining discount rate over time. In its 2022 draft update, EPA applies a near-term discount rate of 2 percent that declines over time. Similarly, New York State has adopted a 2 percent discount rate for the SC-GHG.