The U.S. Environmental Protection Agency recently proposed for public comment new higher estimates of damages from greenhouse gas (GHG) emissions. The estimates, called the social cost of carbon (SCC), are “the monetary value of the net harm to society of emitting a metric ton of carbon dioxide to the atmosphere in a given year.” Ranging from $120 to $340 per metric ton of carbon dioxide (CO2) emitted for 2020, these estimates represent harm to everyone on earth from a metric ton of CO2 emissions, and therein lies a key issue. Recent administrations have split on whether the U.S. government should assess damages from GHGs using effects on the entire globe or just on the United States.

This question matters because the SCC plays a key role in implementing the Biden administration’s ambitious plans to address climate change. The EPA and other agencies use the SCC to estimate benefits of climate and energy regulations, such as limits to power plant emissions or standards for vehicle fuel efficiency. Higher benefits estimates generally justify more costly regulations.

We believe that developing and reporting estimates of climate damages for both the United States and the entire globe would better inform the public than the global estimate alone, as the EPA has proposed. Both estimates should be used separately in calculations of benefits and costs of climate-related regulations and related policies.

We agree with the EPA that the domestic SCC should not be the only measure of the SCC. As the EPA mentioned, an exclusive domestic focus would undermine U.S. policies that encourage global cooperation and would not capture the effects of climate change on supply chain disruptions that affect U.S. welfare or on U.S. business and military infrastructure abroad. Using the domestic SCC in addition to the global SCC would increase transparency about who receives the benefits, foster policy discussions about fairness and equity, furnish agencies with the flexibility to prepare analyses consistent with their statutory mandates, and provide important distributional information to help in international negotiations.

The EPA’s proposal presents estimates for climate effects occurring physically within the United States for a limited set of damage categories but also claims these estimates cover only a subset of total damages, do not capture spillovers or indirect effects, and do not reflect benefits for U.S. citizens and residents. The EPA gives these shortcomings as major reasons for presenting only global damage estimates.

We disagree. In fact, a rich set of economic and environmental data is available to support relatively complete estimates of damages to the United States.

Presenting climate-control benefits to the United States is consistent with the Biden administration’s commitments to consider the equity effects of environmental policies. An exclusive focus on the global SCC is at odds with President Biden’s memorandum calling for more distributional analysis regarding “disadvantaged, vulnerable or marginalized communities” in the United States. The development of a domestic SCC estimate is a prerequisite for a distributional analysis of the effects on such communities.

The EPA’s proposal asserts that the U.S. use of a global estimate of damages will encourage other nations to reduce future emissions. But this seems like wishful thinking. Most countries are already failing to meet their pledged non-binding commitments under the 2015 Paris Agreement. It is longstanding practice in U.S. regulatory analysis to incorporate only those changes in behavior required by current law or binding agreements, not goals or pledges. In addition, focusing strictly on global SCC presumes that U.S. policymakers are indifferent about whether climate-control benefits occur in the United States or elsewhere in the world. Such indifference would be surprising news to members of Congress and to U.S. taxpayers and voters, who have a right to know the benefits of GHG emissions cuts to the United States and the rest of the world.

The choice to develop domestic as well as global SCC estimates affects incentives to both the EPA and the outside academy to improve such estimates. The EPA has chosen to develop a global SCC estimate, a summary measure of a dauntingly complex reality. The agency’s failure to provide a domestic SCC estimate might effectively chill efforts to improve the technical quality of such estimates. 

The EPA should consider and report estimates of the benefits to the United States from GHG emissions reductions. Focusing solely on global benefits of such reductions without considering the corresponding benefits to the United States provides inadequate transparency to Americans who will bear the costs of emissions restrictions adopted by U.S. regulators.

Readings

  • “Challenges in Top-Down and Bottom-Up Soft-Linking: Lessons from Linking a Swedish Energy System Model with a CGE Model,” by A. Krook-Riekkola, C. Berg, E.O. Ahlgren, and P. Söderholm. Energy 141: 803–817 (2017).
  • “Determining the Proper Scope of Climate Change Benefits in U.S. Regulatory Analyses: Domestic versus Global Approaches,” by T. Gayer and W.K. Viscusi. Review of Environmental Economics and Policy 10(2): 245–263 (2016).
  • “Rethinking the Social Cost of Carbon Dioxide,” by M.G. Morgan, P. Vaishnav, H. Dowlatabadi, and I.L Azevedo. Issues in Science and Technology 33(4): 43–50 (2017).
  • “Social Cost of Carbon: Domestic Duty,” by Art Fraas, Randall Lutter, Susan Dudley, et al. Science 351(6273): 569 (2016).
  • “The Climate Policy Dilemma,” by R.S. Pindyck. Review of Environmental Economics and Policy 7(2): 219–237 (2013).
  • “The Economics of Immense Risk, Urgent Action and Radical Change: Towards New Approaches to the Economics of Climate Change,” by N. Stern, J. Stiglitz, and C. Taylor. Journal of Economic Methodology 29(3): 181–216 (2022).
  • “The Social Cost of Carbon Revisited,” by R.S. Pindyck. Journal of Environmental Economics and Management 94: 140–160 (2019).
  • “The Use and Misuse of Models for Climate Policy,” by R.S. Pindyck. Review of Environmental Economics and Policy 11(1): 100–114 (2017).
  • “When and How to Use Economy-Wide Models for Environmental Policy Analysis,” by J.C. Carbone, L.T. Bui, D. Fullerton, et al. Annual Review of Resource Economics 14: 427–446 (2022).