What is the SCC?
What is the best estimate of the SCC for states to use?
The federal government’s Interagency Working Group on the Social Cost of Greenhouse Gases (IWG), which operated from 2009-2017 and was reconvened in 2021, is the best source for SCC estimates. Its methodology, and why its estimates are the best available values for the SCC, are discussed below. Values for the social cost of other greenhouse gases are also discussed in a later section.
Table 1 is from the Interagency Working Group’s 2021 Technical Support Document and shows the SCC estimates, in 2020 dollars, at five-year intervals. In previous IWG technical support documents, these figures are given in 2007 dollars, but the values included in the most recent technical support document and shown in Table 1 are inflated to current (2020) dollars.
Table 1: Social Cost of CO2 (in 2020 dollars per metric ton of CO2) 1
|Year of Emission||
Average estimate at 5% discount rate
Average estimate at 3% discount rate—IWG’s Central Estimate
Average estimate at 2.5% discount rate
High Impact Estimate (95th percentile estimate at 3% discount rate)
Note that the value of the SCC increases over time. This is because the further in the future greenhouse gases are emitted, the greater the damages they will cause, due to the effects of accumulation. Therefore, it is important to calculate the full stream of climate effects, i.e., to take into consideration the emissions from every year of a policy, so that these increasing damages are reflected. The importance of calculating a full stream of future effects, rather than choosing only one year for analysis, is discussed in a later section.
What’s included in the SCC number? What isn’t?
The numbers in Table 1 reflect climate damages as estimated by combining three “Integrated Assessment Models”—specifically, DICE, FUND, and PAGE. These models translate carbon dioxide emissions into changes in atmospheric greenhouse concentrations, atmospheric concentrations into changes in temperature, and temperature changes into economic damages. 2
DICE calculates the effect of temperature on the global economy using a global damage function that is not disaggregated by impacts to specific sectors. 3 Alternately, PAGE, looks at economic, noneconomic, and catastrophic damages. Alternately, PAGE, looks at economic, noneconomic, and catastrophic damages. Finally, FUND considers a number of specific market and nonmarket sectors, including: agriculture, forestry, water, energy use, sea level rise, ecosystems, human health, and extreme weather. 4
Quantified impacts represented in the models include: changes in energy (via cooling and heating) demand; changes in agricultural and forestry output from changes in average temperature and precipitation levels, and CO2 fertilization; property lost to sea level rise; coastal storms; heat-related illnesses; and some diseases (e.g. malaria and dengue fever); changes in fresh water availability; and some general measures of catastrophic and ecosystem impacts.
It is important to note, however, that these models omit, or do a poor job of quantifying, significant damages, and therefore, the SCC values in the above table should be considered lower-bound estimates of the actual costs of marginal carbon emissions. In fact, many experts believe the IWG SCC values are severe underestimates (even while endorsing their continued use for the time being as the best currently available estimates).
Damages that are poorly quantified or omitted from the IAMs are listed in Table 2.
Table 2 - Omitted Damages from the SCC 5
|Category||Specific Impacts Missing from the SCC|
|Productivity and economic growth||
|Catastrophic impacts and tipping points||
|Inter- and intra-regional conflict||
*This table lists climate impacts that have been largely unquantified in the economics literature and are therefore omitted from SCC models.
** These impacts are represented in a limited way in one or more of the SCC models: 1) they may be included in some models, and not others; 2) they may be included only partially (e.g., only one or several impacts of many in the category are estimated); 3) they may be estimated using only general terms not specific to any one damage—in these instances, estimated damages are usually very small relative to their potential magnitude, and relative to the impacts explicitly estimated in the models. See complete report for details.
*** While technically represented in SCC models through extrapolations from small temperature changes, there are no available climate damage estimates for large temperature changes, and these may be catastrophic.
Is there a state-specific SCC we can use?
No, there is no SCC estimate that only reflects climate damages to individual states. No models can accurately calculate a domestic-only, let alone a state-only SCC (see more below). Furthermore, as detailed in the next section, it is in your state’s best interest to use an estimate of the global damages of a ton of CO2. Your state benefits tremendously from actions of other states and other countries to mitigate climate change, and for numerous reasons discussed below, the use of a global SCC helps encourage reciprocal policy choices. Your state’s citizens and businesses also have financial and other interests that extend far beyond your physical borders. If all states or countries used jurisdiction-specific numbers, the result would be significant underregulation.
Why should our state use a global number?
Not only is it best economic practice to estimate the global damages of U.S. greenhouse gas emissions in regulatory analyses and environmental impact statements, but no existing methodology for estimating a “domestic-only” value is reliable or complete. If a state agency is required to provide a domestic-only estimate, the existing, deficient methodologies must be supplemented to reflect international spillovers to the United States, U.S. benefits from foreign reciprocal actions, and the extraterritorial interests of U.S. citizens including financial interests and altruism. The same applies to any attempt to use a state-specific SCC value.
From 2010 through 2016, federal agencies based their regulatory decision and National Environmental Policy Act (NEPA) reviews on global estimates of the social cost of greenhouse gases. Though agencies often also disclosed a “highly speculative” range that tried to capture exclusively U.S. climate costs, emphasis on a global value was recognized as more accurate given the science and economics of climate change, economic practices, and consistency with U.S. strategic goals. 6
To avoid a global “tragedy of the commons” that could irreparably damage all countries, including the United States, every government worldwide should ideally set policy according to the global social cost of greenhouse gases. 7 Because greenhouse pollution does not stay within geographic borders but rather mixes in the atmosphere and affects the climate worldwide, each ton emitted by the United States or a particular U.S. state not only creates domestic harms, but also imposes large externalities on the rest of the world. Conversely, each ton of greenhouse gases abated in another country benefits the United States along with the rest of the world. A Policy Integrity report, “Foreign Action, Domestic Windfall,” calculates that global actions on climate change—particularly by Europe, and including efforts of the United States and other countries—already benefited the United States by over $200 billion as of 2015. Furthermore, the report finds that, as of 2015, climate policies worldwide—including efforts by Europe, Canada, and many other countries, as well as U.S. policies from the time—could generate upwards of $2 trillion in direct benefits to the United States by 2030. 8
If all countries set their greenhouse emission levels based on only domestic costs and benefits, ignoring the large global externalities, the aggregate result would be substantially sub-optimal climate protections and significantly increased risks of severe harms to all nations, including the United States. The same concept would apply to state policies where global externalities are not taken into account. Thus, basic economic principles demonstrate that the United States stands to benefit greatly if all countries apply global social cost of greenhouse gas values in their regulatory decisions and project reviews. Indeed, the United States stands to gain hundreds of billions or even trillions of dollars in direct benefits from efficient foreign action on climate change. 9
Therefore, a rational tactical option in the effort to secure an economically efficient outcome is for the United States and individual states to continue using global social cost of greenhouse gas values. 10 The United States is engaged in a repeated strategic dynamic with several significant players—including the United Kingdom, Germany, Sweden, and others—that have already adopted a global framework for valuing the social cost of greenhouse gases. 11 For example, Canada and Mexico have explicitly borrowed the U.S. estimates of a global SCC to set their own fuel efficiency standards. 12 States have also entered into this international dynamic, with California coordinating with Canada on its cap-and-trade program and with a coalition of states and cities agreeing to uphold the pledges from the Paris Agreement. For the United States or any individual state to now depart from this collaborative dynamic by selecting to a domestic-only estimate could undermine the country’s long-term interests and could jeopardize emissions reductions underway in other countries, which are already benefiting all 50 U.S. states and territories.
There are significant, indirect costs to trade, human health, and security likely to “spill over” to the United States as other regions experience climate change damages. 13 Due to its unique place among countries—both as the largest economy with trade- and investment-dependent links throughout the world, and as a military superpower—the United States is particularly vulnerable to effects that will spill over from other regions of the world. Spillover scenarios could entail a variety of serious costs to the United States as unchecked climate change devastates other countries. Correspondingly, mitigation or adaptation efforts that avoid climate damages to foreign countries will radiate benefits back to the United States as well. 14
For more details on the justification for a global value of the social cost of greenhouse gases, see Peter Howard & Jason Schwartz, Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon. 15 Another strong defense of the global valuation as consistent with best economic practices appears in a letter published in the March 2017 of The Review of Environmental Economics and Policy, co-authored by Nobel laureate Kenneth Arrow. 16
- Interagency Working Grp. On Soc. Cost Of Greenhouse Gases, Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide – Interim Estimates under Exec. Order 13,990 at 5 (2021) [hereinafter TSD 2021], available at https://perma.cc/5B4Q-3T5Q ↩︎
- Interagency Working Grp. On Soc. Cost Of Carbon, Technical Support Document: Social Cost Of Carbon For Regulatory Impact Analysis Under Executive Order 12,866 at 5 (2010) [hereinafter TSD 2010], available here. ↩︎
- TSD 2010, supra note 3, at 6. ↩︎
- TSD 2010, supra note 3, at 7. ↩︎
- Peter Howard, Cost Of Carbon Project. Omitted Damages: What’s Missing From The Social Cost Of Carbon (2014) [hereinafter “Omitted Damages”] ↩︎
- See generally Peter Howard & Jason Schwartz, Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon, 42 Columbia J. Envtl. L. 203 (2017) [hereinafter “Howard & Schwartz 2017”]. ↩︎
- See Garrett Hardin, The Tragedy of the Commons, 162 Science 1243, 1244 (1968) (“[E]ach pursuing [only its] own best interest . . . in a commons brings ruin to all.”). ↩︎
- Peter Howard & Jason Schwartz, Inst. For Pol’y Integrity, Foreign Action, Domestic Windfall (2015): The U.S. Economy Stands To Gain Trillions From Foreign Climate Action 2 (2015). ↩︎
- Id. ↩︎
- See Robert Axelrod, The Evolution of Cooperation 10-11 (1984) (on repeated prisoner’s dilemma games). ↩︎
- See Howard & Schwartz 2017, supra note 7, at 260. ↩︎
- See Heavy-Duty Vehicle and Engine Greenhouse Gas Emission Regulations, SOR/2013-24, 147 Can. Gazette pt. II, 450, 544 (Can.) (“The values used by Environment Canada are based on the extensive work of the U.S. Interagency Working Group on the Social Cost of Carbon.”); Jason Furman & Brian Deese, The Economic Benefits of a 50 Percent Target for Clean Energy Generation by 2025, White House Blog, June 29, 2016 (summarizing the North American Leader’s Summit announcement that U.S., Canada, and Mexico would “align” their SCC estimates). ↩︎
- Indeed, the integrated assessment models used to develop the global SCC estimates largely ignore inter-regional costs entirely, see Omitted Damages, supra note 6; though some positive spillover effects are also possible, such as technology spillovers that reduce the cost of mitigation or adaptation, see S. Rao et al., Importance of Technological Change and Spillovers in Long-Term Climate Policy, 27 ENERGY J. 123, 123–39 (2006); overall spillovers likely mean that the U.S. share of the global SCC is underestimated, see Jody Freeman & Andrew Guzman, Climate Change and U.S. Interests, 109 Columbia L. Rev. 1531 (2009). ↩︎
- See Freeman & Guzman, supra note 14, at 1563-93. ↩︎
- Howard & Schwartz 2017, supra note 7 ↩︎
- Richard Revesz, Kenneth Arrow et al., The Social Cost of Carbon: A Global Imperative, 11 Rev. Of Envt’l. Econ. & Pol’y 172 (2017). ↩︎