The Biden Administration’s Approach to the Social Cost of Carbon

The Biden Administration’s Approach to the Social Cost of Carbon

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As part of his comprehensive climate change agenda, President Biden convened a task force to assess the social cost of greenhouse gases. At the end of February, the task force published an interim report estimating the “cost” of carbon at approximately $52 per ton, a figure aligned with the Obama Administration’s estimates, but significantly increased from the negligible cost of carbon tagged by the Trump Administration. As discussed in this client alert, this report is significant because it suggests that the Biden Administration will use that social cost of carbon figure in the cost-benefit analysis supporting what is expected to be a robust regulatory regime.

Federal agencies often have significant latitude in issuing regulations under the statutes they administer. To guide the exercise of their discretion, for four decades, the White House has required agencies to analyze proposed regulations to ensure their projected benefits exceed their estimated costs. But doing so requires making assumptions, not only about monetary costs and benefits but also about the many nonmonetary benefits such as improved public health that, while sometimes difficult to quantify, are meant to accrue from federal regulation.

Cost-benefit analysis is particularly difficult in environmental policy, where complex science meets a changing world, and where risk assessments play a central role in policy decisions. For climate change, the task of cost-benefit analysis becomes even more difficult. How can a policymaker quantify the social benefits of burning one less gallon of gas, given the ubiquitous effects of climate change? Equally challenging is the task of estimating the cost of impacts from greenhouse gas emissions on a per-ton basis.

To support cost-benefit analysis in the realm of climate change policy, the “social cost of carbon” (or “SCC”) represents a holistic calculation of the costs of carbon dioxide and other greenhouse gas emissions on a rate-per-ton basis. Both the Obama and Trump administrations used a social cost of carbon analysis to support their regulatory goals, though they reached very different values for the social cost of carbon. The Biden Administration is poised to give the social cost of carbon an even more prominent role in its regulatory agenda.

Read the full alert.

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