President Biden is directing his team to retool the values the government uses to assess the costs and benefits of combating climate change in a move that could ultimately help his administration justify stricter emissions controls.
As part of a climate executive order issued on Wednesday, Biden directed federal agencies to review and update the so-called “social cost of carbon” in an effort to reduce climate pollution.
The metric was initially developed by the Obama administration to quantify the costs of global damages caused by rising temperatures. Federal agencies would then use that value as they assess the overall costs and benefits of regulatory actions. Regulations that curb greenhouse gas emissions, therefore, would produce benefits by avoiding climate-related damages.
Without the social cost of carbon to account for the costs of greenhouse gas emissions and the benefits of reducing them, “you’re actually missing a big piece of that analysis and missing some of the real benefits of costs of the actions you might take,” said Kevin Rennert, who directs the think tank Resources for the Future’s social cost of carbon initiative.
“It’s really the social cost of carbon that allows for the federal government to consider the effects of its actions on climate change,” he added.
In his executive order, Biden directs an interagency working group to produce an interim social cost of carbon value within 30 days and a final one by January 2022. The same is ordered for nitrous oxide and methane, two other greenhouse gases.
The Obama administration had set the social cost of carbon at roughly $50 per ton. Under the Trump administration, federal agencies dramatically slashed that value to between $1 and $7 per ton to help it justify rolling back or weakening climate change mandates.
The Trump administration did so by changing two key elements of the metric. It used a higher discount rate, which determines how to weigh the costs people incur in the present with the benefits people would feel in the future. Environmental economists have generally suggested a low discount rate for the social cost of carbon because many of its worst costs won’t be felt for decades.
Secondly, the Trump administration limited the social cost of carbon to look at the costs and benefits only within U.S. borders, as opposed to globally.
Biden’s team will almost certainly scrap the changes made by its predecessor. His administration will also undoubtedly face pressure to ratchet up the social cost of carbon value to reflect more recent research that finds the economic damage from climate change could be significantly worse.
For example, Michael Greenstone, former chief economist in the Obama White House who led development of the initial social cost of carbon, recommended in research published earlier this month that the Biden administration quickly set an interim value of $125 per ton, using a 2% discount rate.
A jump in value that sharp could raise eyebrows, especially among industry groups that will be fighting more aggressive emissions mandates from the Biden administration.
“If they adopt a number of $125, that justifies a lot of efforts,” said Jeff Holmstead, a partner with Bracewell LLP who led the Environmental Protection Agency’s air office during the George W. Bush administration. “If that’s used throughout the federal government, that can have a huge impact.”
Biden also suggests in his executive order he’d use the social cost of carbon beyond regulatory calculations, calling for agencies to provide recommendations by September about where the metric should be applied, including in budgeting and procurement decisions. On the campaign trail, Biden promised to leverage the government’s procurement power to boost renewable energy, electric cars, and other clean technologies.
Beyond setting an interim value, Biden is also asking the interagency working group to conduct a comprehensive review of the social cost of carbon and produce an updated value by January 2022.
Some environmental economists say the Biden team should be careful not to retool and plug new numbers into the models used by the Obama administration. Instead, the Biden team should make bigger changes to the models and even consider alternatives to the social cost of carbon construct.
The Obama-era economic models, for example, omit several categories of climate risks, such as ocean acidification and geopolitical unrest exacerbated by rising temperatures, said Noah Kaufman, a research scholar at Columbia University’s Center on Global Energy Policy who worked on climate and energy in the Obama administration’s Council on Environmental Quality.
In addition, “a lot has been written about how these models don’t give enough value to future generations and vulnerable populations,” he added.
Kaufman also suggested the Biden team consider new ways of valuing carbon that are more rooted in the emissions goals that the administration is trying to achieve. The United Kingdom, for example, uses a method that calculates the costs of curbing carbon in order to meet a specific emissions reduction target.
