Strengthening Tools to Account for Damages from Greenhouse Gas Emissions in Regulatory Analysis

Effectively responding to the threat of climate change requires a scientifically rigorous methodology for accounting for the damages from greenhouse gas emissions.  Applying such a scientifically-grounded understanding to regulatory cost-benefit analysis can help the United States and our international partners move toward a more sustainable, low-carbon future while driving continued economic growth.

Today the Interagency Working Group (IWG) on the Social Cost of Greenhouse Gases (GHGs) issued updated guidance that takes two important steps to further strengthen our accounting methodology for GHGs. First, we have expanded the presentation of our social cost of carbon dioxide (SC-CO2) estimates by incorporating an enhanced and more transparent discussion of uncertainty into our technical support document, as recommended by the National Academies of Sciences, Engineering and Medicine (Academies). The SC-CO2 values, which the IWG recommends for use in regulatory analyses, comprise a range of estimates of the long-term damage done by one ton of CO2 emissions, measured in dollars.  Second, we have added damage measures for two additional GHGs: methane and nitrous oxide.

Last year, the IWG asked the Academies to examine the IWG’s methodology and provide advice on how it might be updated to continue to reflect the most current science.  The Academies’ Committee on the Social Cost of Carbon is issuing its recommendations in two phases: the first phase covers potential near-term enhancements, and the second will address a broader, longer-term set of considerations. In the first phase, the Committee recommended against a near-term update to the SC-CO2 estimates, but offered several suggestions for enhancing the transparency of our presentation, particularly with regard to the characterization of uncertainty, which is inherent in any effort to project and analyze impacts that will only be fully realized over decades and even centuries. Today’s revision of the SC-CO2 Technical Support Document reflects these enhancements.

In addition, the IWG has now applied the same methodology to develop damage estimates for two other GHGs: methane and nitrous oxide.  While emissions of these gases are much smaller than CO2 emissions, the warming caused by one ton of either of them is much higher than the warming caused by a ton of CO2. In fact, the warming caused by a ton of methane is more than 25 times that caused by a ton of CO2, while the warming caused by a ton of nitrous oxide is nearly 300 times the warming from a ton of CO2.  As such, accurately accounting for the impacts of methane and nitrous oxide is an important part of an effective global response to human-induced climate change.  And having a scientifically rigorous, consistent way to value the damages from these emissions (and thus the benefits of reducing them) is critical to ensuring that our voluntary programs and regulations reduce harmful emissions in a cost-effective manner.  Both the methodology for valuing these damages and its application to regulatory cost-benefit analysis have been subject to rigorous independent peer review and public comment.  An addendum to the SC-CO2 Technical Support Document describes the methodology and presents the estimates for the social cost of methane and nitrous oxide recommended for use in federal regulatory analysis. 

The IWG presents all of these estimates with an acknowledgement that they should be updated over time to reflect advances in the science and economics of climate impacts. While the Academies’ ongoing review focuses on the SC-CO2 methodology, recommendations on how to update many of the underlying modeling assumptions will be useful for our modeling of the impacts from other GHGs as well. The IWG plans to evaluate its approach to estimating the social cost of GHGs based upon the longer-term guidance provided in the Academies’ final report (expected in 2017).

As we take steps to continue to keep these estimates informed by the most up-to-date science and economics, this Administration also recognizes that climate change is a global threat that requires international cooperation to combat effectively. That is why the United States is not taking these steps alone.  Alongside President Obama, the leaders of Canada and Mexico have recently declared their intention to increase coordination in addressing climate change by promoting common regulatory approaches to reducing GHG emissions across North America. This coordination includes the alignment of analytic approaches, reflecting the best available science, to account for the costs to society of GHG emissions and for the savings from mitigation measures.   

Through our development of these important damage estimates, the United States is leading the way towards a more efficient regulatory system that will deliver needed emissions reductions, while providing clear rules that support continued economic growth across our highly-integrated North American economy. 

Howard Shelanski is the Administrator of the Office of Information and Regulatory Affairs.

Jay Shambaugh is a Member of the Council of Economic Advisers.