CHAPTER 14. MONETIZATION OF EMISSION REDUCTIONS BENEFITS 

TABLE OF CONTENTS

14.1 INTRODUCTION.............................................................................................................. 14-1

14.2 MONETIZING CARBON DIOXIDE EMISSIONS ....................................................... 14-1

14.2.1 Social Cost of Carbon............................................................................................ 14-1

14.2.2 Monetizing Carbon Dioxide Emissions ............................................................... 14-2

14.2.3 Development of Social Cost of Carbon Values................................................... 14-2

14.2.4 Current Approach and Key Assumptions............................................................. 14-3

14.3 VALUATION OF OTHER EMISSIONS REDUCTIONS............................................. 14-5

14.4 RESULTS........................................................................................................................... 14-5

LIST OF TABLES

Table 14.2.1 Annual SCC Values from 2010 Interagency Report, 2010-2050 (in 2007 

dollars per metric ton) ........................................................................................... 14-4

Table 14.2.2 Annual SCC Values from 2013 Interagency Update, 2010-2050 (in 2007 

dollars per metric ton CO2) ................................................................................... 14-4

Table 14.4.1 Estimates of Global Present Value of CO2 Emissions Reduction under 

Single Package Vertical Units Trial Standard Levels......................................... 14-6

Table 14.4.2 Estimates of Domestic Present Value of CO2 Emissions Reduction under 

Single Package Vertical Units Trial Standard Levels......................................... 14-7

Table 14.4.3 Estimates of Present Value of NOX Emissions Reduction under Single 

Package Vertical Units Trial Standard Levels..................................................... 14-8

Table 14.4.4 Estimates of Global Present Value of CO2 Emissions Reduction under 

Single Package Vertical Units Trial Standard Levels (EPCA Baseline) ........... 14-9

Table 14.4.5 Estimates of Domestic Present Value of CO2 Emissions Reduction under 

Single Package Vertical Units Trial Standard Levels (EPCA Baseline) ......... 14-10

Table 14.4.6 Estimates of Present Value of NOX Emissions Reduction under Single 

Package Vertical Units Trial Standard Levels (EPCA Baseline) ..................... 14-11

14-i 
CHAPTER 14. MONETIZATION OF EMISSION REDUCTIONS BENEFITS 

14.1 INTRODUCTION

As part of its assessment of energy conservation standards for single package vertical air 

conditioners (SPVACs) and single package vertical heat pumps (SPVHPs) – or collectively 

single package vertical units (SPVUs) – DOE estimated the monetary benefits from the potential 

reduced emissions of carbon dioxide (CO2) and nitrogen oxides (NOX) that are expected to result 

from each of the trial standard levels (TSL) considered. This chapter summarizes the basis for 

the monetary values used for each of these emissions and presents the estimated benefits. 

As described in Chapter 13, the analysis of most power sector emissions uses marginal 

emissions intensity factors derived from runs of DOE’s NEMS-BT model. DOE used the version 

of NEMS based on the Annual Energy Outlook 2013 (AEO 2013). Emissions factors based on 

the Annual Energy Outlook 2014 (AEO 2014), which became available too late for incorporation 

into this analysis, indicate that a significant change in the cumulative CO2 and NOx emission 

reductions from the proposed standards can be expected if the projections of power plant 

utilization assumed in AEO 2014 are realized. The estimated amount of cumulative emission 

reductions of CO2 are expected to decrease by 33% from DOE’s current estimate based on the 

projections in AEO 2014 relative to AEO 2013, while the estimated amount of cumulative 

emission reductions of NOx are expected to increase by 13%. The monetized benefits from GHG 

reductions would likely change by a comparable amount. For the next phase of this rulemaking, 

DOE plans to monetize the emissions reductions developed based on the most recent AEO 

available, which may or may not be AEO 2014, depending on the timing of the issuance of the 

next rulemaking document.

14.2 MONETIZING CARBON DIOXIDE EMISSIONS

14.2.1 Social Cost of Carbon 

The social cost of carbon (SCC) is an estimate of the monetized damages associated with 

an incremental increase in carbon emissions in a given year. It is intended to include (but is not 

limited to) changes in net agricultural productivity, human health, property damages from 

increased flood risk, and the value of ecosystem services. Estimates of the SCC are provided in 

dollars per metric ton of carbon dioxide. A domestic SCC value is meant to reflect the value of 

damages in the United States resulting from a unit change in carbon dioxide emissions, while a 

global SCC value is meant to reflect the value of damages worldwide.

Under section 1(b) of Executive Order 12866, agencies must, to the extent permitted by 

law, “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.” The purpose of the 

14-1 
SCC estimates presented in the Executive Order is to allow agencies to incorporate the 

monetized social benefits of reducing CO2 emissions into cost-benefit analyses of regulatory 

actions. The estimates are presented with an acknowledgement of the many uncertainties 

involved and with a clear understanding that they should be updated over time to reflect 

increasing knowledge of the science and economics of climate impacts.

As part of the interagency process that developed these SCC estimates, technical experts 

from numerous agencies met on a regular basis to explore the technical literature in relevant 

fields, discuss key model inputs and assumptions, and consider public comments. The main 

objective of this process was to develop a range of SCC values using a defensible set of input 

assumptions grounded in the existing scientific and economic literatures. In this way, key 

uncertainties and model differences transparently and consistently inform the range of SCC 

estimates used in the rulemaking process.

14.2.2 Monetizing Carbon Dioxide Emissions

When attempting to assess the incremental economic impacts of carbon dioxide 

emissions, the analyst faces a number of serious challenges. A report from the National Research 

Council1 points out that any assessment will suffer from uncertainty, speculation, and lack of 

information about (1) future emissions of greenhouse gases, (2) the effects of past and future 

emissions on the climate system, (3) the impact of changes in climate on the physical and 

biological environment, and (4) the translation of these environmental impacts into economic 

damages. As a result, any effort to quantify and monetize the harms associated with climate 

change will raise serious questions of science, economics, and ethics and should be viewed as 

provisional. 

Despite the limits of both quantification and monetization, SCC estimates can be useful 

in estimating the social benefits of reducing CO2 emissions. The agency can estimate the benefits 

from reduced (or costs from increased) emissions in any future year by multiplying the change in 

emissions in that year by the SCC values appropriate for that year. The net present value of the 

benefits can then be calculated by multiplying each of these future benefits by an appropriate 

discount factor and summing across all affected years. This approach assumes that the marginal 

damages from increased emissions are constant for small departures from the baseline emissions 

path, an approximation that is reasonable for policies that have effects on emissions that are 

small relative to cumulative global carbon dioxide emissions.

14.2.3 Development of Social Cost of Carbon Values

In 2009, an interagency process was initiated to offer a preliminary assessment of how 

best to quantify the benefits from reducing carbon dioxide emissions. To ensure consistency in 

how benefits are evaluated across Federal agencies, the Administration sought to develop a 

transparent and defensible method, specifically designed for the rulemaking process, to quantify 

avoided climate change damages from reduced CO2 emissions. The interagency group did not 

undertake any original analysis. Instead, it combined SCC estimates from the existing literature 

to use as interim values until a more comprehensive analysis could be conducted. The outcome 

14-2 
of the preliminary assessment by the interagency group was a set of five interim values: global 

SCC estimates for 2007 (in 2006 dollars) of $55, $33, $19, $10, and $5 per ton of CO2.

2 These 

interim values represented the first sustained interagency effort within the U.S. government to 

develop an SCC for use in regulatory analysis. The results of this preliminary effort were 

presented in several proposed and final rules.

14.2.4 Current Approach and Key Assumptions

After the release of the interim values, the interagency group reconvened on a regular 

basis to generate improved SCC estimates. Specially, the group considered public comments and 

further explored the technical literature in relevant fields. The interagency group relied on three 

integrated assessment models commonly used to estimate the SCC: the FUND, DICE, and 

PAGE models. These models are frequently cited in the peer-reviewed literature and were used 

in the last assessment of the Intergovernmental Panel on Climate Change (IPCC). Each model 

was given equal weight in the SCC values that were developed.

Each model takes a slightly different approach to model how changes in emissions result 

in changes in economic damages. A key objective of the interagency process was to enable a 

consistent exploration of the three models while respecting the different approaches to 

quantifying damages taken by the key modelers in the field. An extensive review of the literature 

was conducted to select three sets of input parameters for these models: climate sensitivity;

socio-economic and emissions trajectories; and discount rates. A probability distribution for 

climate sensitivity was specified as an input into all three models. In addition, the interagency 

group used a range of scenarios for the socio-economic parameters and a range of values for the 

discount rate. All other model features were left unchanged, relying on the model developers’ 

best estimates and judgments.

The interagency group selected four SCC values for use in regulatory analyses. Three 

values are based on the average SCC from three integrated assessment models, at discount rates 

of 2.5, 3, and 5 percent. The fourth value, which represents the 95th percentile SCC estimate 

across all three models at a 3 percent discount rate, is included to represent higher-than-expected 

impacts from temperature change further out in the tails of the SCC distribution. The values 

grow in real terms over time. Additionally, the interagency group determined that a range of 

values from 7 percent to 23 percent should be used to adjust the global SCC to calculate 

domestic effects, although preference is given to consideration of the global benefits of reducing 

CO2 emissions. Table 14.2.1 presents the values in the 2010 interagency group report,a which is 

reproduced in appendix 14-A of the TSD.

The SCC values used for this analysis were generated using the most recent versions of 

the three integrated assessment models that have been published in the peer-reviewed literature, 

as described in the 2013 update3 from the interagency working group (revised November 2013).

b

a Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. Interagency Working Group 

on Social Cost of Carbon, United States Government, February 2010. 

http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf. b Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. 

Interagency Working Group on Social Cost of Carbon, United States Government. May 2013; revised November 

14-3 

 
Table 14.2.2 shows the updated sets of SCC estimates in five year increments from 2010 to 

2050. The full set of annual SCC estimates between 2010 and 2050 is reported in appendix 14-B 

of the TSD. The central value that emerges is the average SCC across models at the 3 percent 

discount rate. However, for purposes of capturing the uncertainties involved in regulatory impact 

analysis, the interagency group emphasizes the importance of including all four sets of SCC 

values.

Table 14.2.1 Annual SCC Values from 2010 Interagency Report, 2010-2050 (in 2007 dollars 

per metric ton)

Year

Discount Rate %

5 3 2.5 3

Average Average Average 95th Percentile

2010 4.7 21.4 35.1 64.9

2015 5.7 23.8 38.4 72.8

2020 6.8 26.3 41.7 80.7

2025 8.2 29.6 45.9 90.4

2030 9.7 32.8 50.0 100.0

2035 11.2 36.0 54.2 109.7

2040 12.7 39.2 58.4 119.3

2045 14.2 42.1 61.7 127.8

2050 15.7 44.9 65.0 136.2

Table 14.2.2 Annual SCC Values from 2013 Interagency Update, 2010-2050 (in 2007 

dollars per metric ton CO2) 

Year

Discount Rate %

5 3 2.5 3

Average Average Average 95th Percentile

2010 11 32 51 89

2015 11 37 57 109

2020 12 43 64 128

2025 14 47 69 143

2030 16 52 75 159

2035 19 56 80 175

2040 21 61 86 191

2045 24 66 92 206

2050 26 71 97 220

It is important to recognize that a number of key uncertainties remain, and that current 

SCC estimates should be treated as provisional and revisable since they will evolve with 

2013. http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-forregulator-impact-analysis.pdf. 

14-4 

 
improved scientific and economic understanding. The interagency group also recognizes that the 

existing models are imperfect and incomplete. The 2009 National Research Council report 

mentioned above points out that there is tension between the goal of producing quantified 

estimates of the economic damages from an incremental ton of carbon and the limits of existing 

efforts to model these effects. There are a number of analytic challenges that are being addressed 

by the research community, including research programs housed in many of the Federal agencies 

participating in the interagency process to estimate the SCC. The interagency group intends to 

periodically review and reconsider those estimates to reflect increasing knowledge of the science 

and economics of climate impacts, as well as improvements in modeling.

In summary, in considering the potential global benefits resulting from reduced CO2

emissions, DOE used the values from the 2013 interagency report adjusted to 2013$ using the 

GDP price deflator. For each of the four sets of SCC values, the values for emissions in 2015 

were $12.0, $40.5, $62.4, and $119 per metric ton avoided (values expressed in 2013$). DOE 

derived values after 2050 using the relevant growth rates for the 2040-2050 period in the 

interagency update.

DOE multiplied the CO2 emissions reduction estimated for each year by the SCC value 

for that year in each of the four cases. To calculate a present value of the stream of monetary 

values, DOE discounted the values in each of the four cases using the specific discount rate that 

had been used to obtain the SCC values in each case.

 

14.3 VALUATION OF OTHER EMISSIONS REDUCTIONS

DOE considered the potential monetary benefit of reduced NOX emissions from the TSLs 

it considered. As noted in chapter 13, new or amended energy conservation standards would 

reduce NOX emissions in those States that are not affected by caps. DOE estimated the 

monetized value of NOX emissions reductions resulting from each of the TSLs considered based 

on environmental damage estimates found in the relevant scientific literature. Available 

estimates suggest a very wide range of monetary values, ranging from $476 to $4,893 per ton (in 

2013$).4 DOE calculated monetary benefits using a medium value for NOX emissions of $2,684 

per short ton (in 2013$), and real discount rates of 3 percent and 7 percent. 

DOE is still evaluating appropriate values to use to monetize avoided SO2 and Hg 

emissions. It did not monetize these emissions for this analysis. 

14.4 RESULTS 

Table 14.4.1 presents the global values of CO2 emissions reductions for each considered 

TSL. DOE calculated domestic values as a range from 7 percent to 23 percent of the global 

values, and these results are presented in Table 14.4.2. 

14-5 
Table 14.4.1 Estimates of Global Present Value of CO2 Emissions Reduction under Single 

Package Vertical Units Trial Standard Levels

TSL

SCC Case*

5% 

discount

rate, 

average*

3% discount 

rate, 

average*

2.5% 

discount 

rate, 

average*

3% discount 

rate, 95th

percentile*

Million 2013$

Primary Energy Emissions

1 50 241 386 747

2 120 584 937 1812

3 202 969 1552 3006

4 216 1035 1656 3209

Upstream Emissions

1 1.8 8.5 14 26

2 4.3 21 33 64

3 7.2 34 55 107

4 7.8 37 59 114

Full-Fuel-Cycle Emissions

1 52 249 400 773

2 124 605 970 1875

3 209 1003 1607 3112

4 224 1072 1715 3324

* For each of the four cases, the corresponding global SCC value for emissions 

in 2015 is $12.0, $40.5, $62.4, and $119 per metric ton (2013$). 

Note: These results are based on emissions factors in AEO 2013, the most recent version 

available at the time of this analysis. Use of emissions factors in AEO 2014 would likely 

decrease the monetized benefits of CO2 emissions. In the next phase of this rulemaking, 

DOE plans to use emissions factors based on the most recent AEO available, which may 

or may not be AEO 2014, depending on the timing of the issuance of the next 

rulemaking document. 

14-6 
Table 14.4.2 Estimates of Domestic Present Value of CO2 Emissions Reduction under 

Single Package Vertical Units Trial Standard Levels

TSL

SCC Case*

5% discount

rate, 

average*

3% discount

rate, average*

2.5% discount

rate, average*

3% discount

rate, 95th

percentile*

Million 2013$ 

Primary Energy Emissions

1 3.5 to 11.4 16.9 to 55.4 27.0 to 88.8 52.3 to 171.7

2 8.4 to 27.6 40.9 to 134.3 65.6 to 215.5 126.8 to 416.7

3 14.1 to 46.4 67.8 to 222.8 108.6 to 356.9 210.4 to 691.3

4 15.2 to 49.8 72.4 to 238.0 115.9 to 380.8 224.6 to 738.1

Upstream Emissions

1 0.1 to 0.4 0.6 to 2.0 1.0 to 3.1 1.8 to 6.1

2 0.3 to 1.0 1.4 to 4.7 2.3 to 7.6 4.5 to 14.7

3 0.5 to 1.7 2.4 to 7.9 3.9 to 12.7 7.5 to 24.5

4 0.5 to 1.8 2.6 to 8.5 4.1 to 13.6 8.0 to 26.3

Full-Fuel-Cycle Emissions

1 3.6 to 11.8 17.5 to 57.3 28.0 to 91.9 54.1 to 177.8

2 8.7 to 28.6 42.3 to 139.0 67.9 to 223.1 131.3 to 431.3

3 14.6 to 48.0 70.2 to 230.8 112.5 to 369.6 217.9 to 715.8

4 15.7 to 51.6 75.0 to 246.5 120.0 to 394.4 232.7 to 764.5

* For each of the four cases, the corresponding SCC value for emissions in 2015 

is $12.0, $40.5, $62.4, and $119 per metric ton (2013$). 

Note: These results are based on emissions factors in AEO 2013, the most recent version available at 

the time of this analysis. Use of emissions factors in AEO 2014 would likely decrease the monetized 

benefits of CO2 emissions. In the next phase of this rulemaking, DOE plans to use emissions factors 

based on the most recent AEO available, which may or may not be AEO 2014, depending on the 

timing of the issuance of the next rulemaking document. 

Table 14.4.3 presents the present value of cumulative NOX emissions reductions for each

TSL, calculated using the average dollar-per-ton values at 7 percent and 3 percent discount rates. 

14-7 
Table 14.4.3 Estimates of Present Value of NOX Emissions Reduction under Single Package 

Vertical Units Trial Standard Levels

TSL 3% discount rate 7% discount rate

Million 2013$ 

Primary Energy Emissions

1 3.6 1.0

2 9.1 2.6

3 15 4.2

4 15 4.3

Upstream Emissions

1 4.8 2.0

2 11 4.7

3 19 8.2

4 21 9.0

Full-Fuel-Cycle Emissions

1 8.4 3.0

2 21 7.3

3 34 12

4 36 13

Note: These results are based on emissions factors in AEO 2013, the 

most recent version available at the time of this analysis. Use of 

emissions factors in AEO 2014 would likely increase the monetized 

benefits of NOx emissions. In the next phase of this rulemaking, DOE 

plans to use emissions factors based on the most recent AEO 

available, which may or may not be AEO 2014, depending on the 

timing of the issuance of the next rulemaking document. 

Although DOE is statutorily required to evaluate impacts of this rulemaking relative to 

the ASHRAE baseline, for informational purposes, Table 14.4.4 through Table 14.4.6 show the 

results compared to a base case including the current federal standards (i.e., EPCA baseline).

14-8 
Table 14.4.4 Estimates of Global Present Value of CO2 Emissions Reduction under Single 

Package Vertical Units Trial Standard Levels (EPCA Baseline) 

TSL

SCC Case*

5% discount 

rate, 

average*

3% discount 

rate, 

average*

2.5% 

discount 

rate, 

average*

3% discount 

rate, 95th

percentile*

Million 2013$ 

Primary Energy Emissions

1 176 851 1363 2639

2 247 1194 1914 3704 

3 328 1579 2529 4898

4 343 1645 2633 5101

Upstream Emissions

1 6.3 30 48 93

2 8.8 42 67 131

3 12 56 89 173

4 12 59 93 181

Full-Fuel-Cycle Emissions

1 183 881 1411 2732

2 256 1236 1982 3834 

3 340 1635 2618 5071

4 355 1703 2726 5283

* For each of the four cases, the corresponding global SCC value for emissions in 2015 is $12.0, 

$40.5, $62.4, and $119 per metric ton (2013$).

Note: These results are based on emissions factors in AEO 2013, the most recent version 

available at the time of this analysis. Use of emissions factors in AEO 2014 would likely 

decrease the monetized benefits of CO2 emissions. In the next phase of this rulemaking, 

DOE plans to use emissions factors based on the most recent AEO available, which may 

or may not be AEO 2014, depending on the timing of the issuance of the next 

rulemaking document. 

14-9 
Table 14.4.5 Estimates of Domestic Present Value of CO2 Emissions Reduction under 

Single Package Vertical Units Trial Standard Levels (EPCA Baseline) 

TSL

SCC Case*

5% discount

rate, average*

3% discount

rate, average*

2.5% discount

rate, average*

3% discount

rate, 95th

percentile*

Million 2013$ 

Primary Energy Emissions

1 12.3 to 40.6 59.6 to 195.7 95.4 to 313.5 184.7 to 606.9

2 17.3 to 56.8 83.6 to 274.6 134.0 to 440.3 259.3 to 851.9

3 23.0 to 75.5 110.5 to 363.1 177.0 to 581.7 342.8 to 1126.5

4 24.0 to 78.9 115.1 to 378.3 184.3 to 605.5 357.1 to 1173.3

Upstream Emissions

1 0.4 to 1.4 2.1 to 6.9 3.4 to 11.1 6.5 to 21.4

2 0.6 to 2.0 2.9 to 9.7 4.7 to 15.5 9.1 to 30.0

3 0.8 to 2.7 3.9 to 12.9 6.3 to 20.6 12.1 to 39.9

4 0.9 to 2.8 4.1 to 13.5 6.5 to 21.5 12.7 to 41.7

Full-Fuel-Cycle Emissions

1 12.8 to 42.0 61.7 to 202.6 98.8 to 324.6 191.2 to 628.4

2 17.9 to 58.8 86.5 to 284.3 138.7 to 455.8 268.4 to 881.9

3 23.8 to 78.2 114.4 to 376.0 183.3 to 602.2 355.0 to 1166.4

4 24.9 to 81.7 119.2 to 391.7 190.8 to 627.0 369.8 to 1215.0

* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.0, $40.5, 

$62.4, and $119 per metric ton (2013$).

Note: These results are based on emissions factors in AEO 2013, the most recent version available at 

the time of this analysis. Use of emissions factors in AEO 2014 would likely decrease the monetized 

benefits of CO2 emissions. In the next phase of this rulemaking, DOE plans to use emissions factors 

based on the most recent AEO available, which may or may not be AEO 2014, depending on the 

timing of the issuance of the next rulemaking document. 

14-10 
Table 14.4.6 Estimates of Present Value of NOX Emissions Reduction under Single Package 

Vertical Units Trial Standard Levels (EPCA Baseline) 

TSL 3% discount rate 7% discount rate

Million 2013$ 

Primary Energy Emissions

1 13 3.7

2 18 5.3

3 24 6.9

4 24 7.0

Upstream Emissions

1 17 7.0 

2 24 9.7

3 32 13

4 33 14

Full-Fuel-Cycle Emissions

1 30 11

2 42 15

3 55 20

4 57 21

Note: These results are based on emissions factors in AEO 2013, the 

most recent version available at the time of this analysis. Use of 

emissions factors in AEO 2014 would likely increase the monetized 

benefits of NOx emissions. In the next phase of this rulemaking, DOE 

plans to use emissions factors based on the most recent AEO 

available, which may or may not be AEO 2014, depending on the 

timing of the issuance of the next rulemaking document. 

14-11 
REFERENCES

1. National Research Council, Hidden Costs of Energy: Unpriced Consequences of Energy 

Production and Use, 2009. National Academies Press. Washington, DC. 

<http://www.nap.edu/catalog.php?record_id=12794> 

2. Interagency Working Group on Social Cost of Carbon, Social Cost of Carbon for 

Regulatory Impact Analysis under Executive Order 12866, February, 2010. United States 

Government. <http://www.whitehouse.gov/sites/default/files/omb/inforeg/foragencies/Social-Cost-of-Carbon-for-RIA.pdf> 

3. Interagency Working Group on Social Cost of Carbon, Technical Update of the Social 

Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866, May 2013. 

United States Government.

http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria

_2013_update.pdf 

4. U.S. Office of Management and Budget (OMB), 2006 Report to Congress on the Costs 

and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal 

Entities, 2006. Washington, DC. 

<http://www.whitehouse.gov/sites/default/files/omb/assets/omb/inforeg/2006_cb/2006_c

b_final_report.pdf> 

14-12