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President Biden Returns to High Cost of Carbon

The Biden Administration increased the social cost of carbon to $51 per ton, and reestablished the Interagency Working Group to determine the social costs of carbon, nitrous oxide and methane by January 2022. 

This benchmark replaces the Trump Administration’s cost of approximately $8 per ton of carbon. In 2016, the Obama Administration set the cost at $50 per ton. This economic estimate is meant to gauge the benefits of avoiding emissions and quantify the economic and societal damage from greenhouse gasses. 

Interim Cost to Be Used for Rulemaking

The interim cost of $51 per ton of carbon will remain in place until a final number is determined by the Interagency Working Group. In the meantime, this interim figure is likely to appear in actions taken by the administration over the next year, including EPA draft rules for vehicles, oil and gas infrastructure, leasing programs, and government procurement decisions. 

The Hill’s response to this matter has been partisan. Republicans argue the high price is being used to fund far-reaching administration climate policies, while Democrats and advocates cheer the change. 

Interim Discount Rate

Additional disagreements center around what economists call “the discount rate” or how fast money loses value over time. President Trump had raised the discount rate to 7%. The Obama Administration used a 3% discount rate, which had been established in 2003 by the Bush Administration. Technical guidance indicates the Biden Administration will employ an interim 3% discount rate. 

A lower discount rate increases the social cost of greenhouse gases because it places less of a premium on near-term spending for benefits seen in the future. In an Inauguration Day executive order, President Biden directed the White House Office of Management and Budget to review how it conducts regulatory oversight. That review will include analysis of the discount rate. 

The Council’s Government Affairs team will continue to monitor the effects of these moves on members. If you would like to join the Government Affairs Committee, please contact SVP Government Affairs & Counsel Tim Tarpley.

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