More on EPA’s new social cost of carbon estimate… I teased in my other blog that it’s not quite so simple as a singular cost of carbon. EPA explains what the estimates represent, which sounds promising:
“The SC-GHG [social cost of greenhouse gas emissions], therefore, also reflects the societal net benefit of reducing emissions of the GHG by a metric ton. The SC-GHG is the theoretically appropriate value to use when conducting benefit-cost analyses of policies that affect GHG emissions.
… the modeling implemented in this report reflects methodological choices that go in the direction of offering a partial representation of several types of climate change damages, and, given both those choices and the numerous categories of damages that are not currently quantified at all and other model limitations, the resulting SC-GHG estimates likely underestimate the marginal damages from greenhouse gas pollution. “
Sure, there are holes and disclaimers – it’s a base hit, just not a home run. Furthermore, the actual potentially applicable number depends on the greenhouse gas, emission year and discount rate selected as set out in this table extracted from the document:
EPA clarified complexities in applying, using and interpreting these numbers for federal policy development:
“Several steps are necessary when using the SC-GHG estimates in an analysis that includes GHG emissions changes in multiple future years in addition to other benefits and costs. First, the gas-specific SC-GHG estimates corresponding to the year of estimated emissions change need to be applied and discounted to the year of analysis to monetize the emissions. Second, the monetized GHG emissions impacts need to be incorporated with other costs and benefits considered in the analysis.”
In the new methane rule, EPA considered SC-CH4, not SC-CO2 for obvious reasons (CH4 being methane). Remember, the stated intent of the estimates is for cost-benefit analyses in US federal rulemaking for GHG emissions – these “need to be incorporated with other costs and benefits considered.” That may or may not be appropriate for corporate use, but definitely not intended to be used on a standalone basis.
While the NYT called out $190/ton, that is correct in specific limited uses and circumstances, but shouldn’t be taken as “the” number. Companies will need to make their own determinations about whether any of EPA’s new SC-GHG estimates are meaningful to specific uses/settings.
If you aren’t already subscribed to our complimentary ESG blog, sign up here: https://practicalesg.com/subscribe/ for daily updates delivered right to you.
