Page:Technical Support Document - Social Cost of Carbon, Methane and Nitrous Oxide Interim Estimates under Executive Order 13990.pdf/5

 This TSD presents the IWG’s interim findings and provides interim estimates of the SC-CO$2$, SC-CH$4$, and SC-N$2$O that should be used by agencies until a comprehensive review and update is developed in line with the requirements in E.O. 13990. The TSD maintains the same methodological approach as has been used for global USG SC-GHG estimation to date. The estimates rely on the same models and harmonized inputs and are calculated using a range of discount rates. At this time, the IWG has determined that it is appropriate for agencies to revert to the same set of four values drawn from the SC-GHG distributions based on three discount rates (2.5 percent, 3 percent, and 5 percent) as were used in regulatory analyses between 2010 and 2016 and subject to public comment. However, as described below, based on the IWG’s initial review, new data and evidence strongly suggests that the discount rate regarded as appropriate for intergenerational analysis is lower.

Tables ES-1, ES-2, and ES-3 summarize the interim SC-CO$2$, SC-CH$4$, and SC-N$2$O estimates, respectively, for the years 2020 through 2050. These estimates are reported in 2020 dollars but are otherwise identical to those presented in the previous version of the TSD and its Addendum, released in August 2016. For purposes of capturing uncertainty around the SC-GHG estimates in analyses, the IWG emphasized previously and reemphasizes here the importance of considering all four of the SC-GHG values. In particular, this TSD discusses how the understanding of discounting approaches suggests discount rates appropriate for intergenerational analysis in the context of climate change that are lower than 3 percent. Consistent with the guidance in E.O. 13990 for the IWG to ensure that the SC-GHG reflect the interests of future generations, the latest scientific and economic understanding of discount rates discussed in this TSD, and the recommendation from OMB’s Circular A-4 to include sensitivity analysis with lower discount rates when a rule has important intergenerational benefits or costs, agencies may consider conducting additional sensitivity analysis using discount rates below 2.5 percent. Furthermore, the IAMs used to produce these interim estimates do not include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature. For these same impacts, the science underlying their “damage functions” – i.e., the core parts of the IAMs that map global mean temperature changes and other physical impacts of climate change into economic (both market and nonmarket) damages – lags behind the most recent research. Likewise, the assumptions regarding equilibrium climate sensitivity and socioeconomic and emissions scenarios used as inputs to the model runs in this TSD will need to be updated. It is the IWG’s judgment that, taken together, these limitations suggest that the range of four interim SC-GHG estimates presented in this TSD likely underestimate societal damages from GHG emissions. Rh