Page:Technical Support Document - Social Cost of Carbon, Methane and Nitrous Oxide Interim Estimates under Executive Order 13990.pdf/4

 in greenhouse gas emissions resulting from regulations to follow the Office of Management and Budget’s (OMB) Circular A-4.

On January 20, 2021, President Biden issued E.O. 13990 which re-established the IWG and directed it to ensure that SC-GHG estimates used by the U.S. Government (USG) reflect the best available science and the recommendations of the National Academies (2017) and work towards approaches that take account of climate risk, environmental justice, and intergenerational equity. The IWG was tasked with first reviewing the SC-GHG estimates currently used by the USG and publishing interim estimates within 30 days of the E.O. that reflect the full impact of GHG emissions, including taking global damages into account. In this initial review, the IWG finds that the SC-GHG estimates used since E.O. 13783 fail to reflect the full impact of GHG emissions in multiple ways. First, the IWG found previously and is restating here that a global perspective is essential for SC-GHG estimates because climate impacts occurring outside U.S. borders can directly and indirectly affect the welfare of U.S. citizens and residents. Thus, U.S. interests are affected by the climate impacts that occur outside U.S. borders. Examples of affected interests include: direct effects on U.S. citizens and assets located abroad, international trade, tourism, and spillover pathways such as economic and political destabilization and global migration. In addition, assessing the benefits of U.S. GHG mitigation activities requires consideration of how those actions may affect mitigation activities by other countries, as those international mitigation actions will provide a benefit to U.S. citizens and residents by mitigating climate impacts that affect U.S. citizens and residents. Second, the IWG found previously and is restating here that the use of the social rate of return on capital to discount the future benefits of reducing GHG emissions inappropriately underestimates the impacts of climate change for the purposes of estimating the SC-GHG (see Section 3.1). Consistent with the findings of the National Academies (2017) and the economic literature, the IWG continues to conclude that the consumption rate of interest is the theoretically appropriate discount rate in an intergenerational context (IWG 2010, 2013, 2016). The IWG recommends that discount rate uncertainty and relevant aspects of intergenerational ethical considerations be accounted for in selecting future discount rates.

While the IWG works to assess how best to incorporate the latest, peer reviewed science to develop an updated set of SC-GHG estimates, it is setting interim estimates to be the most recent estimates developed by the IWG prior to the group being disbanded in 2017. The IWG concludes that these interim estimates represent the most appropriate estimate of the SC-GHG until the revised estimates have been developed. This update reflects the immediate need to have an operational SC-GHG for use in regulatory benefit-cost analyses and other applications that was developed using a transparent process, peer-reviewed methodologies, and the science available at the time of that process. Those estimates were subject to public comment in the context of dozens of proposed rulemakings as well as in a dedicated public comment period in 2013.

At the same time, consistent with its continuing commitment to a transparent process and a desire to move quickly to update SC-GHG estimates to better reflect the recent science, the IWG will be taking comment on how to incorporate the recommendations of the National Academies (2017) and other recent science, including the advances discussed in this Technical Support Document (TSD), both during the development of the fully updated SC-GHG estimates to be released by January of 2022 and in subsequent updates. The IWG will soon issue a Federal Register notice with a detailed set of requests for public comments on the new information presented in this TSD, as well as other topics and issues the IWG will address as we develop the next set of updates. Rh