4 things to know about EPA’s new climate damage metric

By Jean Chemnick | 01/11/2024 06:50 AM EST

The social cost of carbon could soon be used in a broad set of federal actions.

Oil platforms.

Oil platforms in the Gulf of Mexico. The Biden administration is using metrics to account for climate cost of projects. LM Otero/AP

This story was updated at 11:17 a.m. EST.

As 2023 drew to a close, EPA sharply increased its estimates for what climate change costs society.

Federal agencies will now spend 2024 putting those metrics — known as the social cost of greenhouse gases — to work, using them not just for rulemaking but also potentially for budgeting, procurement and even assessing penalties.


The White House told agencies in late December to use their own “professional judgement” in deciding which social cost metrics to deploy: placeholder figures from an interagency working group, or EPA’s new and stronger estimates. That opened the door for agencies to use EPA’s figures — which were finalized at the end of the year as part of a methane rule — in a broad set of federal actions.

The shift comes during a year when President Joe Biden plans to finalize most of his first-term regulatory agenda. That includes EPA rules to limit pollution from cars, trucks and power plants; new Transportation Department fuel economy standards; and Department of Energy regulations to increase the efficiency of gas stoves and other appliances.

As such rules become final, states and industry groups are likely to launch lawsuits that could target the role the social cost of greenhouse metrics played in supporting them.

Here’s where things stand on this controversial — and influential — set of economic metrics.

What changes did EPA make to social cost metrics?

EPA issued final social cost figures for carbon, methane and nitrous oxides in December as part of its final rules to curb oil and gas methane emissions. The estimates reflect the global economic and welfare costs stemming from 1 ton of heat-trapping pollution.

EPA’s process leapfrogged a White House-led effort that Biden launched in an executive order and which produced a set of interim social cost of greenhouse gas metrics in 2021. Those figures — from the Interagency Working Group (IWG) — were used in rules and some other actions, like mineral lease sales, until EPA finalized its metrics in December.

The White House-helmed IWG has not released final figures, but the administration says its work is “ongoing.”

IWG’s interim social cost figures are much lower than the ones EPA debuted last month, which are based on scholarship and analysis that has deepened in the years since the Obama administration ended — including an influential 2017 National Academies report.

The difference between the interim and EPA figures is stark, especially for carbon. The working group’s interim social cost of carbon for 2020 was $51 per ton, compared with EPA’s $190 per ton. For methane, the increase is more modest: EPA’s 2020 metric was $1,600 per ton, compared to the working group’s $1,500 per ton.

Part of the difference between the interim metrics and EPA’s final figures comes from the so-called discount rate of 2 percent, which declined in later years — an effort to put future impacts more on par with present costs. IWG used a central discount rate of 3 percent.

But the White House lowered that central discount rate last year in new governmentwide guidelines for regulatory analysis. It’s now 2 percent and declining — in line with what EPA did — to give greater weight to consequences for future generations.

What does this mean for environmental policy?

Higher social cost values are likely to help the Biden administration make the case that stricter climate rules are justified, even if they come at some cost to regulated industry.

“If you use a de minimis number, it’s very hard to compellingly argue that ambitious regulations are cost-benefit justified,” noted Brian Prest, a fellow at Resources for the Future.

A higher carbon value can also help tip the scales in favor of a stronger regulatory option that delivers greater net benefits, he said.

But that doesn’t mean EPA must finalize tougher standards to go with higher valuations. Agencies have used the social cost of greenhouse gases in hundreds of cost-benefit analyses for rules over the last decade. But few laws require agencies to always choose the least-cost regulatory option they identify — let alone the choice that confers the greatest monetized climate benefits.

“Agencies often leave a more stringent option on the table, even if their own analysis finds that it would yield greater net benefits,” said Max Sarinsky, a senior attorney at the Institute for Policy Integrity at New York University School of Law.

He noted EPA’s draft power plant rule identified a tougher option for limiting carbon pollution — one that came with net monetized benefits, even using the lower IWG social cost of carbon estimate. But the agency still didn’t choose that option.

“It’s not computers making these regulations. It’s regulators who use judgment, balancing numerous factors,” he added. “And the economic analysis is one of those factors. But only one of them.”

How could Biden expand the use of the metrics?

In the past, agencies mostly used the social cost of greenhouse gases in regulations, with some exceptions. The Bureau of Ocean Energy Management, for example, analyzed direct and some indirect emissions for the five-year offshore oil leasing plan it released in September using the social cost of carbon.

But also in September, the White House asked agencies to consider ways that monetized climate values could inform other government work, like agency budgets and procurement.

The White House directive said the federal government could use its status as the world’s largest purchaser to “move markets, invest in new ideas, and act as a model contracting partner.”

The White House last year asked agencies to use their purchase of “large, durable, energy-consuming products and systems” to test how the social cost of greenhouse gases could be applied.

Federal procurement agencies are also planning a slate of green purchasing rules, including one due out as soon as this month to curb the government’s “climate risk in acquisitions.” That draft is currently under White House review.

Not all economists think the social cost of greenhouse gases should be used for applications other than regulations.

Steve Rose, principal economist at the Electric Power Research Institute, said emissions should be priced directly, not indirectly through purchasing.

Vendors’ emissions might be regulated or priced already, he said.

“So that means they’re already internalized into decisions,” he said. “We’re essentially charging more than once for the same molecule.”

How do the new metrics fit into lawsuits over climate rules?

Red states have so far failed in their attempts to use the courts to keep the Biden administration from using its social cost metrics.

Last year, the Supreme Court declined to review lower courts’ decisions to reject challenges from Missouri and other red states; the courts had ruled that the challenges were premature because they came before rules were finalized that used the social cost of carbon figures.

More lawsuits are likely as EPA finalizes new rules that cite the social cost metrics, or as other agencies use them in regulations, procurement or other decisions. But experts say those lawsuits might be complicated by the fact that federal decisions usually don’t hinge on a single factor.

“It’s imaginable that at some point the government will deny approval of a project based on the social cost of carbon, and somebody will challenge them in court,” said Michael Gerrard, director of the Sabin Center for Climate Change Law at Columbia University. “But it’s more likely that if the government is disapproving a project, it won’t do that solely based on the social cost of carbon. It’ll have several different bases. And so, if one but not all of the bases are thrown out, then the action probably survives.”