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CHAPTER 17. MONETIZATION OF EMISSION REDUCTIONS BENEFITS

TABLE OF CONTENTS

17.1 INTRODUCTION ............................................................................................................ 17-1

17.2 MONETIZING CARBON DIOXIDE EMISSIONS ........................................................ 17-1

17.2.1 Social Cost of Carbon ........................................................................................ 17-1

17.2.2 Monetizing Carbon Dioxide Emissions ............................................................. 17-2

17.2.3 Social Cost of Carbon Values Used in Past Regulatory Analyses ..................... 17-2

17.2.4 Current Approach and Key Assumptions .......................................................... 17-3

17.3 VALUATION OF OTHER EMISSIONS REDUCTIONS .............................................. 17-5

REFERENCES .......................................................................................................................... 17-6

LIST OF TABLES

Table 17.1 Social Cost of CO2, 2010 – 2050 (in 2007$ per metric ton) .................................... 17-4
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CHAPTER 17. MONETIZATION OF EMISSION REDUCTIONS BENEFITS

17.1 INTRODUCTION

As part of its notice of proposed rulemaking (NOPR), the U.S. Department of Energy 

(DOE) will consider the estimated monetary benefits likely to result from the reduced emissions 

of carbon dioxide (CO2) and nitrogen oxides (NOX) that are expected to result from trial standard 

levels (TSLs) considered. In order to make this calculation similar to the calculation of the NPV 

of consumer benefit, DOE will consider the reduced emissions expected to result over the 

lifetime of products shipped in the forecast period for each TSL. This chapter summarizes the

basis for the monetary values that will be used for each of these emissions in the NOPR analysis. 

17.2 MONETIZING CARBON DIOXIDE EMISSIONS

17.2.1 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 CO2. A domestic SCC value is meant to reflect the value of damages in 

the United States resulting from a unit change in CO2 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 

SCC estimates presented here is to allow agencies to incorporate the monetized social benefits of 

reducing CO2 emissions into cost-benefit analyses of regulatory actions that have small, or 

“marginal,” impacts on cumulative global emissions. 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 consider public comments, explore the 

technical literature in relevant fields, and discuss key model inputs and assumptions. 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.
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17.2.2 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 recent 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 serious limits of both quantification and monetization, SCC estimates can be 

useful in estimating the social benefits of reducing CO2 emissions. Most Federal regulatory 

actions can be expected to have marginal impacts on global emissions. For such policies, 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 value 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 CO2 emissions.

17.2.3 Social Cost of Carbon Values Used in Past Regulatory Analyses 

In the past, economic analyses for Federal regulations have used a wide range of values 

to estimate the benefits associated with reducing carbon dioxide emissions. In the final model 

year 2011Corporate Average Fuel Economy (CAFE) rule, the Department of Transportation 

(DOT) used both a “domestic” SCC value of $2 per ton of CO2 and a “global” SCC value of $33 

per ton of CO2 for 2007 emission reductions (in 2007$), increasing both values at 2.4 percent per 

year.

2 It also included a sensitivity analysis at $80 per ton of CO2. 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.

A 2008 regulation proposed by DOT assumed a domestic SCC value of $7 per ton of CO2

(in 2006$) for 2011 emission reductions (with a range of $0-$14 for sensitivity analysis), also 

increasing at 2.4 percent per year.

3

 A regulation for packaged terminal air conditioners and 

packaged terminal heat pumps finalized by DOE in 2008 used a domestic SCC range of $0 to 

$20 per metric ton CO2 for 2007 emission reductions (in 2007$). 73 FR 58772, 58814 (Oct. 7, 

2008). In addition, EPA’s 2008 Advance Notice of Proposed Rulemaking on Regulating 

Greenhouse Gas Emissions Under the Clean Air Act identified what it described as “very 

preliminary” SCC estimates subject to revision. 73 FR 44354 (July 30, 2008). EPA’s global 

mean values were $68 and $40 per metric ton CO2 for discount rates of approximately 2 percent 

and 3 percent, respectively (in 2006$ for 2007 emissions). 

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

best to quantify the benefits from reducing CO2 emissions. To ensure consistency in how benefits 
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are evaluated across 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 of the preliminary 

assessment by the interagency group was a set of five interim values: global SCC estimates for 

2007 (in 2006$) of $55, $33, $19, $10, and $5 per ton of CO2. These interim values represent 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 and were offered for public comment in connection with proposed rules, including the 

joint EPA-DOT fuel economy and CO2 tailpipe emissions proposed rules. See CAFE Rule for 

Passenger Cars and Light Trucks Draft EIS and Final EIS, cited above. 

17.2.4 Current Approach and Key Assumptions

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

basis to generate improved SCC estimates. Specifically, 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.

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

in the last assessment of the Intergovernmental Panel on Climate Change. 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. For emissions 

(or emission reductions) that occur in later years, these values grow in real terms over time, as 

depicted in Table 17.1. 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 

 

a The models are described in appendix 17A of the TSD.
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effects,

b although preference is given to consideration of the global benefits of reducing CO2 

emissions.

Table 17.1 Social Cost of CO2, 2010 – 2050 (in 2007$ per metric ton)

Discount Rate

 5% 3% 2.5% 3% 

Avg Avg Avg 95th 

 

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

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 

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

existing models are imperfect and incomplete. The 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 concerns and problems that should be addressed by the 

research community, including research programs housed in many of the agencies participating 

in the interagency process to estimate the SCC. 

DOE recognizes the uncertainties embedded in the estimates of the SCC used for costbenefit analyses. As such, DOE and others in the U.S. Government intend 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 this context, statements recognizing 

the limitations of the analysis and calling for further research take on exceptional significance.

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

emissions, DOE will use the values identified in Table A1 of the “Social Cost of Carbon for 

Regulatory Impact Analysis Under Executive Order 12866,” which is reprinted in appendix 17A 

of the interim technical support document (TSD), appropriately escalated for the year of the 

analysis using the Gross Domestic Product price deflator.

c To calculate a present value of the 

 

b

 It is recognized that this calculation for domestic values is approximate, provisional, and highly speculative. There 

is no a priori reason why domestic benefits should be a constant fraction of net global damages over time. c Table 17.1 presents SCC values through 2050. For DOE’s calculation, it derived values after 2050 using the 3- 

percent per year escalation rate used by the interagency group. 
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stream of monetary values, DOE will discount the values using the specific discount rate that had 

been used to obtain the SCC values in each case.

17.3 VALUATION OF OTHER EMISSIONS REDUCTIONS

DOE will consider the potential monetary benefit of reduced NOX emissions from the 

TSLs it considers. As noted in chapter 16 of the interim TSD, new or amended energy 

conservation standards would reduce NOX emissions in those 22 States that are not affected by 

caps. DOE will estimate the monetized value of NOX emissions reductions resulting from each of 

the TSLs considered based on environmental damage estimates from the literature. Available 

estimates suggest a very wide range of monetary values, ranging from $468 to $4,809 per ton in 

2012$.d In accordance with Office of Management and Budget (OMB) guidance, DOE will 

calculate a range of monetary benefits using each of the economic values for NOX and real 

discount rates of 3 percent and 7 percent.4

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

emissions in energy conservation standards rulemakings. 

 

d

 For additional information, refer to U.S. Office of Management and Budget, Office of Information and Regulatory 

Affairs, “2006 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on 

State, Local, and Tribal Entities,” Washington, D.C. 
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REFERENCES

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

Production and Use. 2009. National Academies Press: Washington, D.C.

2. National Highway Traffic Safety Administration. Average Fuel Economy Standards 

Passenger Cars and Light Trucks Model Year 2011, 74 FR 14196 (March 30, 2009); Final 

Environmental Impact Statement Corporate Average Fuel Economy Standards, Passenger 

Cars and Light Trucks, Model Years 2011-2015 at 3-90 (Oct. 2008) <www.nhtsa.gov/fueleconomy> 

3. National Highway Traffic Safety Administration. Average Fuel Economy Standards 

Passenger Cars and Light Trucks Model Year 2011, 73 FR 24325 (May 2, 2008) (Proposed 

Rule); Draft Environmental Impact Statement Corporate Average Fuel Economy Standards, 

Passenger Cars and Light Trucks, Model Years 2011-2015 at 3-58 (June 2008) 

<www.nhtsa.gov/fuel-economy> 

4. U.S. Office of Management and Budget. Circular A-4: Regulatory Analysis (Sept. 17, 2003). 

Washington, D.C.