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Social Cost of Carbon Metric Still Omits Major Climate Damages

Dec. 6, 2022, 9:00 AM

The Environmental Protection Agency’s draft report on estimating the social costs of greenhouse gas emissions reflects advances in research and methodological changes.

It also reflects a reduction in the “discount rate"—a concept that treats damages in the future as less meaningful than damages in the present—and one that is fraught with moral implications. Reducing the discount rate increases the value placed on the future.

Although the EPA is officially continuing to use the interim social cost of carbon of $51 per ton, the central estimate in the draft report would raise the social cost of carbon to $190.

The revised metric also continues to leave out major categories of climate damages that scientists and economists have not felt comfortable quantifying.

These include damages from more frequent and severe wildfires, damages from ocean acidification, any damages that will be incurred after the year 2300, and damage to culturally or historically significant resources.

Omissions Problematic

The report does explain some of these omissions, but it does not conduct the kind of analysis of omitted damages suggested—or even required—by OMB Circular A-4.

Much more disturbing is that the Biden administration’s new supplemental rule to strengthen oil and gas methane standards, which references the draft report, does not mention that any damage categories are unquantified.

The fact that the EPA has not focused attention on these omitted damages is puzzling. The social cost of carbon has become a political football, and the subject of increasing litigation. The Trump administration tried to water it down, and some red states and their allies have brought lawsuits to prohibit its use.

Reporters and judges may not have time to follow the debates about discount rates and other factors involved in the metric. But they would understand if federal officials, when discussing the social cost of carbon, were to acknowledge that they were being so careful about this metric, that when they are not sure how to quantify one of the effects of climate change, they leave it out of the social cost of carbon, even if it’s obviously a major effect.

It seems obvious that pointing out these facts will help enhance the credibility of the social cost of carbon metric. Showing how conservative you are is usually a pretty good defense to the argument that you’re being radical.

One can certainly imagine that some judges will feel a lot more comfortable approving the use of a revised social cost of carbon if they know that it is still very conservative in key ways.

Moreover, explaining the omitted damages is simply the right thing to do—and it’s something agencies are supposed to do. Red states in their attacks on the social cost of carbon have relied heavily—albeit misleadingly—on OMB Circular A-4, which instructs agencies on cost-benefit analysis.

Requirements of OMB Circular A-4

The circular makes it very clear that unquantified damages are to be taken seriously. It provides that if an agency is “not able to quantify” certain effects of an action, it should do three things.

First, the agency should “present any relevant quantitative information along with a description of the unquantified effects.”

Next, it should conduct a “threshold” analysis to evaluate the significance of any “non-quantified” benefit that is likely to be important. And finally, it “should indicate, where possible, which non-quantified effects are most important and why.”

While the EPA’s draft report does contain some detail on some unquantified damages, such as ocean acidification, it does not conduct anything like the kind of analysis suggested by the circular.

One curious omission from the report is any discussion of damages to culturally and historically significant assets. The National Academy of Sciences, in a 2017 analysis, specifically called out the failure of previous models to account for such damages.

Given that climate change threatens many iconic landmarks, like the Statue of Liberty and Boston’s Faneuil Hall, this is a category of damages that should at least be mentioned.

The EPA’s draft report is an important step forward. For one thing, by using a reduced discount rate, the revised metric no longer treats a human life lost in the year 2300 as only worth $2,700 today.

But the EPA would be well-advised to pay more attention to the omitted damages.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Steve Novick is an environmental lawyer who from 1987 to 1996 worked for the US Justice Department, including as lead counsel on the Love Canal case.