From: Higgins, Cortney [mailto:Cortney_Higgins@omb.eop.gov] 

Sent: Friday, May 30, 2014 3:58 PM 

To: Culligan, Kevin 

Cc: Wayland, Robertj; Elman, Barry; Chappell, Linda 

Subject: Edits to Chapter 8 RIA 

See attached, starting on page 8-7 – edits just in the uncertainty section. 

Regards, 

Cortney 

<< Chapter_8_ Net Benefits 053014 noon edits to uncertainty section.docx >> 
***E.O. 12866 Review – Draft – Do Not Cite, Quote or Release During Review*** 

8-1 

CHAPTER 8: COMPARISON OF BENEFITS AND COSTS 

8.1 Comparison of Benefits and Costs 

 The illustrative benefits, costs, and net benefits of the compliance with Options 1 and 

Option 2 illustrative compliance scenarios are presented in this chapter of the Regulatory Impact 

Analysis (RIA). As discussed in Chapter 31, the EPA is proposing two options for state-specific 

rate-based CO2 goals that reflect application of cost-effective measures from all four building 

blocks discussed. For both Options 1 and 2, presented in this RIA, two illustrative compliance 

scenarios, reflecting possible compliance approaches with state-specific CO2 goals, are analyzed 

in this RIA. These Options scenarios are a reflection of what compliance could look like for 

Options 1 and 2, assuming states comply with the CO2 goals on an individual state basis 

(referred to as state approach) or a number of states comply collectively on a regional basis 

(referred to as regional approach). EPA is proposing Option 1 and taking comment on Option 2. 

The guidelines allow flexibility of compliance, and EPA recognizes that actual compliance may 

differ from the illustrative approaches reflected analyzed in this RIA. 

 The EPA has used the social cost of carbon estimates presented in the 2013 Technical 

Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact 

Analysis Under Executive Order 12866 (2013 SCC TSD) to analyze CO2 climate impacts of this 

rulemaking.1

 We refer to these estimates, which were developed by the U.S. government, as 

“SCC estimates.” The SCC is an estimate of the monetary value of impacts associated with a 

marginal change in CO2 emissions in a given year). The four SCC estimates are associated with 

different discount rates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95th

percentile at 3 percent), and each increases over time. In this comparison of benefits and costs, 

the EPA provides the estimate of climate benefits associated with the SCC value deemed to be 

 

1

 Docket ID EPA-HQ-OAR-2013-0495, Technical Support Document: Technical Update of the Social Cost of 

Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social 

Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality, 

Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, 

Environmental Protection Agency, National Economic Council, Office of Energy and Climate Change, Office of 

Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, 

Revised November 2013). Available at: 

http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-forregulator-impact-analysis.pdf. 
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8-2 

central in the SCC TSD (the model average at 3% discount rate). As Table 8-1 shows, the EPA 

estimates that under the proposed Option 1, regional approach monetized climate benefits (in 

2011$) are $17 billion in 2020, assuming a 3 percent discount rate (model average). The air 

pollution health co-benefits in 2020 are estimated to be $16 billion to $37 billion for a 3 percent 

discount rate and $15 billion to $34 billion (2011$) for a 7 percent discount rate. The annual, 

illustrative compliance costs estimated by IPM and inclusive of demand side energy efficiency 

program and participant costs and Mmonitoring, Rreporting, and Rrecordkeeping (MRR) costs, 

are approximately $5.5 billion (2011$) in 2020. The quantified net benefits (the difference 

between monetized benefits and costs) in 2020, are $28 billion to $49 billion using a 3 percent 

discount rate and $26 billion to $45 billion assuming a 7 percent discount rate (2011$). In 

comparison, net benefits for the Option 1 state compliance approach in 2020 are estimated to be 

$27 billion to $50 billion, using a 3 percent discount rate and $26 billion to $46 billion assuming 

a 7 percent discount rate. Option 2 regional and state compliance approach benefits, costs and 

net benefits for 2020 are also shown on Table 8-1. Table 8-2 reflects estimates for the Options 1 

and 2 regional and state compliance approaches for 2025. For the regional compliance approach 

to the proposal Option 1 in 2030, the EPA estimates this proposal approach will yield monetized 

climate benefits of $30 billion (2011$) (using 3 percent discount rate (model average) as shown 

on Table 8-3. 

In addition to CO2, implementing these proposed guidelines is expected to reduce 

emissions of SO2 and NOX, which are precursors to formation of ambient PM2.5, as well as 

directly emitted fine particles.2 Therefore, reducing these emissions would also reduce human 

exposure to ambient PM2.5 and ozone precursors, thus the incidence of PM2.5- and ozone related 

health effects. These air pollution health co-benefits in 2030 are estimated to be $254 billion to 

$59 billion for a 3 percent discount rate and $23 billion to $54 billion (2011$) for a 7 percent 

discount rate. 

 

2

 We estimate the health co-benefits associated with emission reductions of two categories of directly emitted 

particles: elemental carbon plus organic carbon (EC+OC) and crustal. Crustal emissions are composed of 

compounds associated with minerals and metals from the earth’s surface, including carbonates, silicates, iron, 

phosphates, copper, and zinc. Often, crustal material represents particles not classified as one of the other species 

(e.g., organic carbon, elemental carbon, nitrate, sulfate, chloride, etc.). 

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8-3 

The annual illustrative compliance costs estimated using IPM, inclusive of demand side 

energy efficiency program and participant costs and MRR costs, are approximately $7.3 billion 

(2011$) in 2030. The quantified net benefits for the Option 1 regional in 2030 are $48 billion to 

$82 billion, assuming a 3 percent discount rate, and $46 to $77 billion assuming a 7 percent 

discount rate (2011$). In 2030, quantified net benefits are $49 billion to $84 billion, assuming a 

3 percent discount rate, and $46 to $79 billion assuming a 7 percent discount rate (2011$) for the 

Option 1 state compliance approach. This table also reflects benefit, cost, and net benefit 

estimates in 2030 for Option 2 regional and state compliance approaches. 

 Based upon the foregoing discussion, it remains clear that this proposal’se combined 

climate benefits and human health co-benefits associated with the reduction in other air 

pollutants of this proposal are substantial and far outweigh the compliance costs for the all of the 

regulatory options and compliance approaches. The EPA could not monetize important 

categories of impacts. Unquantified impacts include those associated with changes in emissions 

of other pollutants that affect the climate, such as methane. In addition, the analysis does not 

quantify co-benefits from reducing exposure to SO2, NOx, and hazardous air pollutants (e.g., 

mercury and hydrogen chloride), as well as ecosystem effects and visibility impairment.

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8-4 

Table 8-1. Summary of Estimated Monetized Benefits, Compliance Costs, and Net Benefits 

for the Proposed Guidelines – 2020 (billions of 2011$) a

Option 1 - state Option 2 – state 

3% Discount 

Rate 

7% Discount 

Rate 

3% Discount 

Rate 

7% Discount 

Rate 

Climate Benefits b 

5% discount rate 

3% discount rate 

2.5% discount rate 

95th percentile at 3% discount rate 

$4.9 

$18 

$26 

$52 

$3.8 

$14 

$20 

$40 

Air pollution health co-benefits c $17 to $40 $15 to $36 $14 to $32 $12 to $29 

Total Compliance Costs d $7.5 $5.5 

Net Benefits e $27 to $50 $26 to $46 $22 to $40 $20 to $37 

Non-Monetized Benefits 

Direct exposure to SO2 and NO2

1.5 tons of Hg 

Ecosystem Eeffects 

Visibility impairment 

Direct exposure to SO2 and NO2

1.2 tons of Hg 

Ecosystem Eeffects 

Visibility impairment 

Option 1 – regional Option 2 – regional 

3% Discount 

Rate 

7% Discount 

Rate 

3% Discount 

Rate 

7% Discount 

Rate 

Climate Benefits b

5% discount rate 

3% discount rate 

2.5% discount rate 

95th percentile at 3% discount rate 

$4.7 

$17 

$25 

$51 

$3.6 

$13 

$19 

$39 

Air pollution health co-benefits c $16 to $37 $15 to $34 $13 to $31 $12 to $28 

Total Compliance Costs d $5.5 $4.3 

Net Benefits e $28 to $49 $26 to $45 $22 to $40 $21 to $37 

Non-Monetized Benefits 

Direct exposure to SO2 and NO2

1.3 tons of Hg 

Ecosystem Eeffects 

Visibility impairment 

Direct exposure to SO2 and NO2

0.9 tons of Hg 

Ecosystem Eeffects 

Visibility impairment a All estimates are for 2020, and are rounded to two significant figures, so figures may not sum. 

b The climate benefit estimates in this summary table reflect global impacts from CO2 emission changes and do not 

account for changes in non-CO2 GHG emissions. Different discount rates are applied to SCC than to the other 

estimates because CO2 emissions are long-lived and subsequent damages occur over many years. The SCC 

estimates are year-specific and increase over time. 

c The air pollution health co-benefits reflect reduced exposure to PM2.5 and ozone associated with emission 

reductions of directly emitted PM2.5, SO2 and NOX. The range reflects the use of concentration-response 

functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 

90 percent of total monetized co-benefits from PM2.5 and ozone. These models assume that all fine particles, 

regardless of their chemical composition, are equally potent in causing premature mortality because the scientific 

evidence is not yet sufficient to allow differentiation of effect estimates by particle type. 

d Total social costs are approximated by the illustrative compliance costs estimated, in part, using the Integrated 

Planning Model for the proposed option and a discount rate of approximately 5%. This estimate includes 

monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs. 

e The estimates of net benefits in this summary table are calculated using the global social cost of carbon at a 3 

percent discount rate (model average). The RIA includes combined climate and health estimates based on these 

additional discount rates.
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Table 8-2. Summary of Estimated Monetized Benefits, Compliance Costs, and Net Benefits 

for the Proposed Guidelines – 2025 (billions of 2011$) a

Option 1 – state Option 2 – state 

3% Discount 

Rate 

7% Discount 

Rate 

3% Discount 

Rate 

7% Discount 

Rate 

Climate Benefits b 

5% discount rate 

3% discount rate 

2.5% discount rate 

95th percentile at 3% discount rate 

$7.6 

$25 

$37 

$77 

$5.6 

$19 

$28 

$27 

Air pollution health co-benefits c $23 to $54 $21 to $49 $18 to $41 $16 to $37 

Total Compliance Costs d $5.5 $5.5 

Net Benefits e $43 to $74 $41 to $69 $31 to $55 $29 to $51 

Non-Monetized Benefits 

Direct exposure to SO2 and NO2

2.0 tons of Hg 

Ecosystem Eeffects 

Visibility impairment 

Direct exposure to SO2 and NO2

1.7 tons of Hg 

Ecosystem Eeffects 

Visibility impairment 

Option 1 – regional Option 2 – regional 

3% Discount 

Rate 

7% Discount 

Rate 

3% Discount 

Rate 

7% Discount 

Rate 

Climate Benefits b

5% discount rate 

3% discount rate 

2.5% discount rate 

95th percentile at 3% discount rate 

$7.5 

$25 

$37 

$76 

$5.5 

$18 

$27 

$56 

Air pollution health co-benefits c $23 to $53 $21 to $48 $17 to $40 $16 to $36 

Total Compliance Costs d $4.6 $4.5 

Net Benefits e $43 to $74 $41 to $69 $31 to $54 $29 to $50 

Non-Monetized Benefits 

Direct exposure to SO2 and NO2

1.7 tons of Hg 

Ecosystem Eeffects 

Visibility impairment 

Direct exposure to SO2 and NO2

1.3 tons of Hg 

Ecosystem Eeffects 

Visibility impairment a All estimates are 2025, and are rounded to two significant figures, so figures may not sum. 

b The climate benefit estimates in this summary table reflect global impacts from CO2 emission changes and do not 

account for changes in non-CO2 GHG emissions. Different discount rates are applied to SCC than to the other 

estimates because CO2 emissions are long-lived and subsequent damages occur over many years. The SCC 

estimates are year-specific and increase over time. 

c The air pollution health co-benefits reflect reduced exposure to PM2.5 and ozone associated with emission 

reductions of directly emitted PM2.5, SO2 and NOX. The range reflects the use of concentration-response 

functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 

90 percent of total monetized co-benefits from PM2.5 and ozone. These models assume that all fine particles, 

regardless of their chemical composition, are equally potent in causing premature mortality because the scientific 

evidence is not yet sufficient to allow differentiation of effect estimates by particle type. 

d Total social costs are approximated by the illustrative compliance costs estimated, in part, using the Integrated 

Planning Model for the proposed option and a discount rate of approximately 5%. This estimate includes 

monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs. 

e The estimates of net benefits in this summary table are calculated using the global social cost of carbon at a 3 

percent discount rate (model average). The RIA includes combined climate and health estimates based on these 

additional discount rates. 
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8-6 

Table 8-3. Summary of Estimated Monetized Benefits, Compliance Costs, and Net Benefits 

for the Proposed Guidelines –2030 (billions of 2011$) a

Option 1– state Option 2– state 

3% Discount 

Rate 

7% Discount 

Rate 

3% Discount 

Rate 

7% Discount 

Rate 

Climate Benefits b 

5% discount rate 

3% discount rate 

2.5% discount rate 

95th percentile at 3% discount rate 

$9.5 

$31 

$44 

$94 

$6.4 

$21 

$30 

$63 

Air pollution health co-benefits c $27 to $62 $24 to $56 $18 to $42 $16 to $38 

Total Compliance Costs d $8.8 $3.1 

Net Benefits e $49 to $84 $46 to $79 $36 to $59 $34 to $56 

Non-Monetized Benefits 

Direct exposure to SO2 and NO2

2.1 tons of Hg and 590 tons of HCl 

Ecosystem Eeffects 

Visibility impairment 

Direct exposure to SO2 and NO2

1.5 tons of Hg and 130 tons of HCl 

Ecosystem Eeffects 

Visibility impairment 

Option 1– regional Option 2– regional 

3% Discount 

Rate 

7% Discount 

Rate 

3% Discount 

Rate 

7% Discount 

Rate 

Climate Benefits b

5% discount rate 

3% discount rate 

2.5% discount rate 

95th percentile at 3% discount rate 

$9.3 

$30 

$44 

$92 

$6.0 

$20 

$28 

$60 

Air pollution health co-benefits c $25 to $59 $23 to $54 $17 to $40 $15 to $36 

Total Compliance Costs d $7.3 $1.9 

Net Benefits e $48 to $82 $46 to $77 $35 to $57 $33 to $54 

Non-Monetized Benefits 

Direct exposure to SO2 and NO2

1.7 tons of Hg and 580 tons of HCl 

Ecosystem Eeffects 

Visibility impairment 

Direct exposure to SO2 and NO2

1.1 tons of Hg and 30 tons of HCl 

Ecosystem Eeffects 

Visibility impairment a All estimates are 2030, and are rounded to two significant figures, so figures may not sum. 

b The climate benefit estimates in this summary table reflect global impacts from CO2 emission changes and do not 

account for changes in non-CO2 GHG emissions. Also, different discount rates are applied to SCC than to the 

other estimates because CO2 emissions are long-lived and subsequent damages occur over many years. The SCC 

estimates are year-specific and increase over time. 

c The air pollution health co-benefits reflect reduced exposure to PM2.5 and ozone associated with emission 

reductions of directly emitted PM2.5, SO2 and NOX. The range reflects the use of concentration-response 

functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 

90 percent of total monetized co-benefits from PM2.5 and ozone. These models assume that all fine particles, 

regardless of their chemical composition, are equally potent in causing premature mortality because the scientific 

evidence is not yet sufficient to allow differentiation of effect estimates by particle type. 

d

 Total social costs are approximated by the illustrative compliance costs estimated, in part, using the Integrated 

Planning Model for the proposed option and a discount rate of approximately 5%. This estimate includes 

monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs. 

e

 The estimates of net benefits in this summary table are calculated using the global social cost of carbon at a 3 

percent discount rate (model average). The RIA includes combined climate and health estimates based on these 

additional discount rates. 
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8-7 

8.2 Uncertainty Analysis 

The Office of Management and Budget’s circular Regulatory Analysis (Circular A-4) provides 

guidance on the preparation of regulatory analyses required under E.O. 12866, and requires an 

uncertainty analysis for rules with annual benefits or costs of $1 billion or more.3

 This proposed 

rulemaking surpasses that threshold for both benefits and costs. Throughout the RIA, we 

considered a number of sources of uncertainty, both quantitatively and qualitatively, on benefits 

and costs The three notable source of uncertainty are called out here: 

 There is a significant amount of uncertainty associated with the simulation of the choices 

that states will make regarding how they will reduce CO2 (i.e., as illustrated Options 1 

and 2 below). These simulations influence both the costs and the benefits (see below). 

 The uncertainty associated with these illustrative scenarios is further compounded by the 

approach used to calculate the health co-benefits associated with the reduction in PM2.5 

and ozone that would happen when CO2-reduction technologies are implemented. 

 The usual uncertainties associated with the PM2.5 and ozone related health benefits 

estimates hold here as well 

 The climate related benefits, particularly those associated with the social cost of carbon 

introduce separate uncertainties. 

. We summarize key elements of our uncertainty analysis here. Some of these elements are 

evaluated using probabilistic techniques, whereas for others the underlying likelihoods of certain 

outcomes are unknown and so we use scenario analysis to evaluate their potential effect on the 

benefits and costs of this rulemaking. 

Uncertainty Associated with Simulating Technologies Adopted: 

The calculation of the state goals is based on an evaluation of methods for reducing the 

carbon emissions intensity of electricity generation that may be achieved at reasonable cost. Our 

best estimates of the costs of these methods of intensity reduction are reported within the cost 

analysis of this rule and are included in the cost modeling in the RIA (e.g., the cost of demand-

 

3

 Office of Management and Budget (OMB), 2003, Circular A-4, 

http://www.whitehouse.gov/omb/circulars_a004_a-4 and OMB, 2011. Regulatory Impact Analysis: A Primer.

http://www.whitehouse.gov/sites/default/files/omb/inforeg/regpol/circular-a-4_regulatory-impact-analysis-aprimer.pdf 

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Comment [A1]: Accepted EPA insert. Track 

changes are suggestions for expanding this section. 

Block of extent were copied directly from Chapter 4 

of the RIA. 

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8-8 

side energy efficiency programs and non-emitting generation). We have also conducted cost 

analyses for alternative quantifications of the degree to which the building blocks of the BSER 

determination can reduce the carbon emissions intensity of electricity generation, and scenarios 

modeled and presented in this RIA illustrate the potential range of impacts of the varying 

specifications of building block potential between Option 1 and Option 2 scenarios. Comments 

received by EPA on this proposal will have the potential to shed light on some of the uncertain 

components associated with the cost of technologies or other methods of reducing emissions 

intensity and will inform the basis of analyses in the final rule. However, we recognize that 

systematic uncertainty will persist in the analysis even with this additional information and 

analysis, especially given the state-level flexibility in meeting the guidelines. 

A significant source of uncertainty under this regulation is the ultimate approach states 

will take to comply with the guidelines, which will affect both the costs and benefits of this rule. 

For this reason we modeled two potential compliance scenarios for each regulatory option: the 

state scenario and the regional scenario. In general, for both Option 1 and Option 2, the 

compliance cost of the regulation fell under the regional scenario as compared to the state 

scenario, while the reductions of CO2 and other pollutants from fossil fuel combustion also fell 

(but by lesser proportions). However, from this analysis we see that the net benefits of the two 

scenarios, given consistent assumptions, do not differ notably. 

Uncertainty associated with Benefits-Ton Approach 

 All benefit-per-ton have inherent limitations, including that the estimates reflect the 

geographic distribution of the modeled sector emissions, which may not match the emission 

reductions anticipated by the proposed guidelines, and they may not reflect local variability in 

population density, meteorology, exposure, baseline health incidence rates, or other local factors 

for any specific location. In addition, these estimates reflect the regional average benefit-per-ton 

for each ambient PM2.5 precursor emitted from EGUs, which assumes a linear atmospheric 

response to emission reductions. The regional benefit-per-ton estimates, although less subject to 

these types of uncertainties than national estimates, still should be interpreted with caution. Even 

though we assume that all fine particles have equivalent health effects, the benefit-per-ton 

estimates vary between precursors depending on the location and magnitude of their impact on 

PM2.5 levels, which drive population exposure. 

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Uncertainty associated with PM2.5 and Ozone Health Co-Benefits 

Our estimate of the total monetized co-benefits is based on EPA’s interpretation of the best 

available scientific literature and methods and supported by the SAB-HES and the National 

Academies of Science (NRC, 2002). Below are key assumptions underlying the estimates for 

PM2.5-related premature mortality, which accounts for 98 percent of the monetized PM2.5 health 

co-benefits. 

1. We assume that all fine particles, regardless of their chemical composition, are 

equally potent in causing premature mortality. This is an important assumption, 

because PM2.5 varies considerably in composition across sources, but the scientific 

evidence is not yet sufficient to allow differentiation of effect estimates by particle 

type. The PM ISA concluded that “many constituents of PM2.5 can be linked with 

multiple health effects, and the evidence is not yet sufficient to allow differentiation 

of those constituents or sources that are more closely related to specific outcomes” 

(U.S. EPA, 2009b). 

2. We assume that the health impact function for fine particles is log-linear without a 

threshold in this analysis. Thus, the estimates include health co-benefits from 

reducing fine particles in areas with varied concentrations of PM2.5, including both 

areas that do not meet the fine particle standard and those areas that are in attainment, 

down to the lowest modeled concentrations. 

3. We assume that there is a “cessation” lag between the change in PM exposures and 

the total realization of changes in mortality effects. Specifically, we assume that some 

of the incidences of premature mortality related to PM2.5 exposures occur in a 

distributed fashion over the 20 years following exposure based on the advice of the 

SAB-HES (U.S. EPA-SAB, 2004c), which affects the valuation of mortality cobenefits at different discount rates. 

EPA also evaluated significant sources of uncertainty in the estimate of climate benefits 

of the emission reductions forecast by the compliance cost modeling.4 The modeling underlying 

 

4

 As discussed in Chapter 4, EPA estimated the global social benefits of CO2 emission reductions expected from the 

proposed guidelines using the SCC estimates presented in the 2013 Technical Support Document: Technical 

Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (2013 SCC 

TSD). The estimates were first developed by the U.S. government and published in the 2010 Technical Support 

Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency 

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8-10 

the development of the SCC estimates addressed uncertainty in several ways. Three integrated 

assessment models (IAMs) were used to generate the SCC estimates. Each IAM relied on Monte 

Carlo simulations specifying different possible outcomes for climate sensitivity (represented by a 

Roe and Baker Distribution), used five different emissions growth scenarios and three discount 

rates. The distribution of results were depicted by four point estimates. The use of this range of 

point estimates in this rulemaking helps to reflect the uncertainty in the SCC estimation exercise. 

See both the 2010 SCC TSD and 2013 SCC TSD for a full description. 

In addition, EPA quantitatively assessed uncertainty in the air pollution health cobenefits, including probabilistic approaches. For example, EPA provides the 95th percentile 

confidence interval for avoided PM-related premature deaths and the associated economic 

valuation using two key epidemiology studies. Further, EPA provides the PM-related results 

using alternate concentration-response relationship provided by an expert elicitation and alternate 

ozone-related results using concentration-response relationships provided by alternate 

epidemiology studies. Additional quantitative analyses include sensitivity analyses for alternate 

income growth adjustments and cessation lags, assessments of the distribution of population 

exposure in the modeling underlying the benefit-per-on estimates, and a quantitative evaluation 

of the benefit-per-ton estimates relative to recent analyses. A qualitative description of 

uncertainties associated with certain assumptions for PM, such as the linear model and equal 

potency across constituents, is also provided. For further discussion and characterization of those 

uncertainties influencing the benefit assessment, see Chapter 4. 

Uncertainty Associated with Estimating the Social Cost of Carbon 

The 2010 SCC TSD noted a number of limitations to the SCC analysis, including the 

incomplete way in which the integrated assessment models capture catastrophic and noncatastrophic impacts, their incomplete treatment of adaptation and technological change, 

uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk 

aversion. Current integrated assessment models do not assign value to all of the important 

physical, ecological, and economic impacts of climate change recognized in the climate change 

literature due to a lack of precise information on the nature of damages and because the science 

incorporated into these models understandably lags behind the most recent research. The limited 

 Working Group on Social Cost of Carbon (2010 SCC TSD) and updated in the 2013 SCC TSD. We refer to 

these estimates as “SCC estimates.” 

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8-11 

amount of research linking climate impacts to economic damages makes the modeling exercise 

even more difficult. These individual limitations do not all work in the same direction in terms of 

their influence on the SCC estimates, though taken together they suggest that the SCC estimates 

are likely conservative. In particular, the IPCC Fourth Assessment Report (2007) concluded that 

“It is very likely that [SCC estimates] underestimate the damage costs because they cannot 

include many non-quantifiable impacts.” 

EPA characterizedalso evaluated significant sources of uncertainty in the estimate of 

climate benefits of the emission reductions forecast by the compliance cost modeling.5 The 

modeling underlying the development of the SCC estimates addressed uncertainty in several 

ways. Three integrated assessment models (IAMs) were used to generate the SCC estimates. 

Each IAM relied on Monte Carlo simulations specifying different possible outcomes for climate 

sensitivity (represented by a Roe and Baker Distribution), used five different emissions growth 

scenarios and three discount rates. The distribution of results were depicted by four point 

estimates. The use of this range of point estimates in this rulemaking helps to reflect the 

uncertainty in the SCC estimation exercise. See both the 2010 SCC TSD and 2013 SCC TSD for 

a full description. 

 

5

 As discussed in Chapter 4, EPA estimated the global social benefits of CO2 emission reductions expected from the 

proposed guidelines using the SCC estimates presented in the 2013 Technical Support Document: Technical 

Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (2013 SCC 

TSD). The estimates were first developed by the U.S. government and published in the 2010 Technical Support 

Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency 

Working Group on Social Cost of Carbon (2010 SCC TSD) and updated in the 2013 SCC TSD. We refer to 

these estimates as “SCC estimates.”