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EPA FACT SHEET

SOCIAL COST OF CARBON

Background

EPA and other federal agencies use estimates of the social cost of carbon (SC-CO

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) to value the

climate impacts of rulemakings. The SC-CO

is a measure, in dollars, of the long-term damage

The SC-CO

among other things, changes in net agricultural productivity, human health, property damages

from increased flood risk and changes in energy system costs, such as reduced costs for heating

and increased costs for air conditioning. However, it does not currently include all important

damages. The IPCC Fifth Assessment report observed that SC-CO

impacts that would likely increase damages. The models used to develop SC-CO

not currently include all of the important physical, ecological, and economic impacts of climate

The timing of the emission release (or reduction) is key to estimation of the SC-CO

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, which is

based on a present value calculation. The integrated assessment models first estimate damages

occurring after the emission release and into the future, often as far out as the year 2300. The

models then discount the value of those damages over the entire time span back to present

value to arrive at the SC-CO

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. For example, the SC-CO

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for the year 2020 represents the present

value of climate change damages that occur between the years 2020 and 2300 (assuming 2300

is the final year of the model run); these damages are associated with the release of one ton of

carbon dioxide in the year 2020. The SC-CO

selection of a fixed end year—will place downward pressure on the SC-CO

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estimates for later

emission years. Alternatively, the SC-CO

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should increase over time because future emissions

are expected to produce larger incremental damages as physical and economic systems

become more stressed in response to greater levels of climatic change.

One of the most important factors influencing SC-CO

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estimates is the discount rate. A large

portion of climate change damages are expected to occur many decades into the future and the

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present value of those damages (the value at present of damages that occur in the future) is

and the value would be even lower—$87 million-- with a 5 percent rate. This effect is even

more pronounced when looking at the present value of damages further out in time. The value

of $1 billion in 100 years is $85 million, $52 million, and $8 million, for discount rates of 2.5

percent, 3 percent, and 5 percent, respectively. Similarly, the selection of a 2.5 percent discount

rate would result in higher SC-CO

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estimates than would the selection of 3 and 5 percent rates,

all else equal.

Process Used to Develop Estimates of the Social Cost of Carbon for Regulatory Analysis

The SC-CO

November 2007, an agency was ordered by the courts to consider the SC-CO

process. U.S. Ninth Circuit Court of Appeals remanded a fuel economy rule to DOT for failing to

monetize CO

the value of carbon emissions reduction is certainly not zero.”

In 2009, an interagency working group was convened by the Council of Economic Advisers and

the Office of Management and Budget to determine how best to monetize the net effects (both

positive and negative) of CO

emissions and sought to harmonize a range of different SC-CO

scientific and economic experts from the White House and federal agencies, including: Council

on Environmental Quality, National Economic Council, Office of Energy and Climate Change,

and Office of Science and Technology Policy, EPA, and the Departments of Agriculture,

Commerce, Energy, Transportation, and Treasury. The interagency group identified a variety of

assumptions, which EPA then used to estimate the SC-CO

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using three integrated assessment

models, which each combine climate processes, economic growth, and interactions between

the two in a single modeling framework.

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Social Cost of Carbon Values

The 2009-2010 interagency group recommended a set of four SC-CO

estimates for each

the SC-CO

appropriate rate to use for analyses spanning multiple generations. In addition, as discussed in

the 2010 SC-CO

and economic literature on the potential for lower-probability, but higher-impact outcomes

from climate change, which would be particularly harmful to society and thus relevant to the

public and policymakers. The fourth value is thus included to represent the marginal damages

associated with these lower-probability, higher-impact outcomes. Accordingly, this fourth value

is selected from further out in the tail of the distribution of SC-CO

discussion about the methodology and resulting estimates.

Rather, improvements in the way damages are modeled are confined to those that have been

incorporated into the latest versions of the models by the developers themselves and as used in

the peer-reviewed literature. The current SC-CO

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TSD presents and discusses the 2013 update

(including minor technical corrections to the estimates published in November 2013 and July

2015).

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The table on the following page summarizes the four SC-CO

four SC-CO

2025 (2007 dollars).

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Social Cost of CO

, 2015-2050

(in 2007 dollars per metric ton CO

)

High Impact

th

$105

$123

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The interagency group developed the SC-CO

estimates with the acknowledgement of the many

a number of limitations to the SC-CO

analysis, including the incomplete way in which the

integrated assessment models capture catastrophic and non-catastrophic impacts, their

Next Steps

future updates to ensure that the estimates continue to reflect the best available science. An

Academies committee, “Assessing Approaches to Updating the Social Cost of Carbon,”

(Committee) will provide expert, independent advice on the merits of different technical

approaches for modeling and highlight research priorities going forward.

In January 2016, the