Overnight going “green” became a more attractive option for businesses and manufactures. How? The Obama administration increased the social cost of carbon (SCC). This increase will impact every industry that deals with greenhouse gas (GHG) emissions regardless of size. The SCC is a monetary value agencies use to perform cost/benefit analysis to quantify the benefits of regulating GHG emissions. It is intended to put a price tag on damages, such as flooding and crop loss, that may occur as a result of anthropogenic GHG emissions. The net benefit of such a regulation is then determined by subtracting the SCC from the cost of compliance. If the SCC is higher, then the net benefit of a regulation will appear to be greater because the cost of compliance is more easily justified.
Executive Order 12866 requires agencies “to assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” It was under Executive Order 12866 that an Interagency Working Group first developed the SCC in 2010 (Interagency Working Group 2010 Report). On May 31, 2013, the SCC was raised from $21 per metric ton to $33 per metric ton (Interagency Working Group 2013 Report). Surprisingly, the increase was brought to the public’s attention in the US Department of Energy’s regulatory impact analysis for energy efficiency standards for microwave ovens–not a very obvious first appearance for a standard that will have a substantial impact on manufacturers and industry.
One place where the increased SCC will have a significant impact in the short term is USEPA’s rules capping GHG emissions from the largest energy generating units (EGUs). (See USEPA’s Regulatory Impact Analysis for this rule). USEPA missed its April 2013 deadline to finalize the new source performance standard for new EGUs. However, on June 25th 2013, the White House rolled out its plan for tackling climate change, placing regulation of EGUs front and center. In his Memorandum, the President directed USEPA to finalize standards for new sources by September 20, 2013 and emission guidelines for existing sources by June 2015.
The increased SCC will be used to justify these regulations as well as any other GHG related regulations developed by USEPA. Therefore, the increasing SCC is important for all industries to have on their radar. As the SCC increases, so does USEPA’s ability to justify the cost of compliance because the projected harm associated with GHG emissions has increased. When the assigned cost to society from GHG emission is high, then the regulation of GHG emissions from smaller sources is more easily justified. The new SCC numbers may indicate an upward trend that will impact much more than how much energy is used when you use your microwave oven. Sooner or later, as smaller and smaller sources are regulated for GHG emission, the SCC will be coming to a regulation near you.