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CHAPTER 10. MONETIZATION OF EMISSION REDUCTIONS BENEFITS 

TABLE OF CONTENTS

10.1 INTRODUCTION ......................................................................................................... 10-1

10.2 MONETIZING CARBON DIOXIDE EMISSIONS..................................................... 10-1

10.2.1 Social Cost of Carbon ........................................................................................ 10-1

10.2.2 Social Cost of Carbon Values Used in Past Regulatory Analyses..................... 10-3

10.2.3 Current Approach and Key Assumptions.......................................................... 10-4

10.3 VALUATION OF OTHER EMISSIONS REDUCTIONS ........................................... 10-5

10.4 RESULTS ...................................................................................................................... 10-5

LIST OF TABLES

Table 10.2.1 Social Cost of CO2, 2010 – 2050 (in 2007 dollars per metric ton).................... 10-2

Table 10.4.1 ASHRAE Products Estimates of Global Present Value of CO2 Emissions 

Reduction Under Efficiency Levels................................................................... 10-6

Table 10.4.2 ASHRAE Products Estimates of Domestic Present Value of CO2

Emissions Reduction Under Efficiency Levels ................................................. 10-7

Table 10.4.3 ASHRAE Products Estimates of Present Value of NOX Emissions 

Reduction Under Efficiency Levels................................................................... 10-8
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CHAPTER 10. MONETIZATION OF EMISSION REDUCTIONS BENEFITS 

10.1 INTRODUCTION

As part of its assessment of energy conservation standards, DOE considered 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 each of the efficiency levels considered. 

This chapter summarizes the basis for the estimated monetary values used for each of these 

emissions and presents the benefits estimates considered.

10.2 MONETIZING CARBON DIOXIDE EMISSIONS

10.2.1 Social Cost of Carbon

Under 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 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. 

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.

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

depicted in Table 10.2.1.

Table 10.2.1 Social Cost of CO2, 2010 – 2050 (in 2007 dollars 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

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 Councila 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 carbon dioxide emissions. Consistent with the 

directive quoted above, the purpose of the SCC estimates presented here is to make it possible 

for agencies to incorporate the social benefits from reducing carbon dioxide emissions into costbenefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative 

global 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 

 a National Research Council. Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use. 

National Academies Press: Washington, DC. 2009.
10-3

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. For policies that have a large (non-marginal) 

impact on global cumulative emissions, there is a separate question of whether the SCC is an 

appropriate tool for calculating the benefits of reduced emissions. DOE does not attempt to 

answer that question here.

It is important to emphasize that the interagency process is committed to updating these 

estimates as the science and economic understanding of climate change and its impacts on 

society improves over time. Specifically, the interagency group has set a preliminary goal of 

revisiting the SCC values within two years or at such time as substantially updated models 

become available, and to continue to support research in this area. In the meantime, the 

interagency group will continue to explore the issues raised by this analysis and consider public 

comments as part of the ongoing interagency process.

10.2.2 Social Cost of Carbon Values Used in Past Regulatory Analyses

To date, 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 

2011 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 dollars), increasing both values at 2.4 percent per year. 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 dollars) for 2011 emission reductions (with a range of $0-$14 for sensitivity analysis), 

also increasing at 2.4 percent per year. A regulation finalized by DOE in October of 2008 used a 

domestic SCC range of $0 to $20 per ton CO2 for 2007 emission reductions (in 2007 dollars). In 

addition, EPA’s 2008 Advance Notice of Proposed Rulemaking for Greenhouse Gases identified 

what it described as “very preliminary” SCC estimates subject to revision. EPA’s global mean 

values were $68 and $40 per ton CO2 for discount rates of approximately 2 percent and 3 

percent, respectively (in 2006 dollars for 2007 emissions).

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 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 dollars) of $55, $33, $19, $10, and $5 per 

ton of CO2. The $33 and $5 values represented model-weighted means of the published estimates 

produced from the most recently available versions of three integrated assessment models—
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DICE (Dynamic Integrated Climate Economy), PAGE (Policy Analysis of the Greenhouse 

Effect), and FUND (Climate Framework for Uncertainty, Negotiation and Distribution)—at 

approximately 3 and 5 percent discount rates. The $55 and $10 values were derived by adjusting 

the published estimates for uncertainty in the discount rate (using factors developed by Richard 

Newell and William Pizer)b at 3 and 5 percent discount rates, respectively. The $19 value was 

chosen as a central value between the $5 and $33 per ton estimates. All of these values were 

assumed to increase at 3 percent annually to represent growth in incremental damages over time 

as the magnitude of climate change increases.

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 

emission proposed rules.

10.2.3 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, which were considered for this rule. Specifically, the 

group considered public comments and further explored the technical literature in relevant fields.

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.

The U.S. Government intends to periodically review and reconsider estimates of the SCC 

used for cost-benefit analyses 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. 

The interagency group offers the new SCC values with all due humility about the uncertainties 

embedded in them and with a sincere promise to continue work to improve them.

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

emissions, DOE used the most recent values identified by the interagency process, adjusted to 

2010$ using the standard GDP deflator values for 2008 and 2009. For each of the four cases 

specified, the values used for emissions in 2010 were $5.0, $22.7, $37.2, and $68.8 per metric

ton avoided (values expressed in 2011$). To monetize the CO2 emissions reductions expected to 

result from conservation standards for water and evaporatively cooled products, VRF water 

 b R. Newell and W. Pizer. “Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?” J. 

Environ. Econ. Manage. 46 (2003) 52-71)
10-5

source heat pumps, and computer room air conditioners, DOE used 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 10-A of this TSD, appropriately escalated to 2011$. To

calculate a present value of the stream of monetary values, DOE discounted the values in each of 

the four cases using the discount rates that had been used to obtain the SCC values in each case.

10.3 VALUATION OF OTHER EMISSIONS REDUCTIONS

As discussed in chapter 9, DOE’s analysis assumed the presence of nationwide emission 

caps on SO2 and caps on NOX emissions in the 28 States covered by the CAIR. In the presence 

of these caps, the NEMS–BT modeling system that DOE used to forecast emissions reduction 

indicated that no physical reductions in power sector emissions would occur for SO2, but that the 

standards could put slight downward pressure on the prices of emissions allowances in cap-andtrade markets. Estimating this effect is very difficult because such factors as credit banking can 

change the trajectory of prices. From its modeling to date, DOE is unable to estimate a benefit 

from SO2 emissions reductions at this time. 

DOE investigated the potential monetary benefit of reduced NOX emissions from the 

Efficiency Levels it considered. As noted above, new or amended energy conservation standards 

would reduce NOX emissions in those 22 States that are not affected by the CAIR, in addition to 

the reduction in site NOX emissions nationwide. DOE estimated the monetized value of NOX

emissions reductions resulting from each of the Efficiency Levels considered for today’s final 

rule based on environmental damage estimates from the literature. Available estimates suggest a 

very wide range of monetary values, ranging from $370 per ton to $3,800 per ton of NOX from 

stationary sources, measured in 2001$ (equivalent to a range of $454 to $4,672 per ton in 

2011$).c In accordance with OMB guidance, DOE conducted two calculations of the monetary 

benefits derived using each of the economic values used for NOX, one using a real discount rate 

of 3 percent and another using a real discount rate of 7 percent. d

 

DOE is aware of multiple agency efforts to determine the appropriate range of values used 

in evaluating the potential economic benefits of reduced Hg emissions. DOE has decided to 

await further guidance regarding consistent valuation and reporting of Hg emissions before it 

once again monetizes Hg in its rulemakings.

10.4 RESULTS

Table 10.4.1 presents the global values of CO2 emissions reductions at each Efficiency 

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

values, and these results are presented in Table 10.4.2.

 c 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, DC. d

 OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003).
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Table 10.4.1 ASHRAE Products Estimates of Global Present Value of CO2 Emissions 

Reduction Under Efficiency Levels 

Eff. 

Level

Million 2011$

5% discount 

rate, 

average*

3% discount 

rate, 

average*

2.5% discount 

rate, average*

3% discount 

rate, 95th

percentile*

Water-cooled and Evaporatively-cooled Products

1 0.5 2.4 4.1 7.4

2 0.5 2.5 4.3 7.7

3 1.2 6.3 10.6 19.1

4 1.8 9.0 15.2 27.4

5 1.8 9.2 15.6 28.1

VRF Water-source Heat Pumps

1 0.0 0.0 0.0 0.0

2 0.3 1.4 2.3 4.2

3 4.3 22.5 38.1 68.4

4 10.3 53.7 91.1 163.4

5 18.9 98.1 166.5 298.5

Computer Room Air Conditioners

1 0.9 4.7 7.9 14.4

2 11.2 57.5 97.4 175.2

3 48.2 246.7 417.5 751.4

4 119.9 613.9 1038.7 1869.3

5 214.6 1099.0 1859.6 3346.6

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn 

from a different part of the distribution. Values presented in the table are based on escalating 2007$ to 2010$ for 

consistency with other values presented in this notice, and incorporate the escalation of the SCC over time.
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Table 10.4.2 ASHRAE Products Estimates of Domestic Present Value of CO2 Emissions 

Reduction Under Efficiency Levels 

Eff. 

Level

5% discount 

rate, average*

Million 2011$

3% discount 

rate, average*

2.5% discount 

rate, average*

3% discount rate, 

95th percentile*

Water-cooled and Evaporatively-cooled Products

1 0.03 to 0.09 0.13 to 0.44 0.22 to 0.74 0.41 to 1.33

2 0.03 to 0.08 0.13 to 0.42 0.22 to 0.71 0.39 to 1.29

3 0.07 to 0.22 0.34 to 1.11 0.57 to 1.87 1.03 to 3.40

4 0.10 to 0.32 0.49 to 1.59 0.82 to 2.68 1.48 to 4.86

5 0.10 to 0.33 0.50 to 1.63 0.84 to 2.74 1.51 to 4.97

VRF Water-source Heat Pumps

1 0.00 to 0.0 0.0 to 0.0 0.0 to 0.0 0.0 to 0.0

2 0.01 to 0.05 0.07 to 0.24 0.12 to 0.40 0.22 to 0.72

3 0.22 to 0.72 1.10 to 3.61 1.85 to 6.08 3.35 to 11.0

4 0.52 to 1.72 2.61 to 8.58 4.40 to 14.4 7.96 to 26.2

5 0.96 to 3.14 4.78 to 15.7 8.04 to 26.4 14.6 to 47.9

Computer Room Air Conditioners

1 0.05 to 0.16 0.24 to 0.78 0.40 to 1.31 0.72 to 2.38

2 0.58 to 1.89 2.87 to 9.42 4.82 to 15.8 8.74 to 28.7

3 2.17 to 7.13 10.8 to 35.5 18.2 to 59.7 32.9 to 108

4 5.05 to 16.6 25.1 to 82.6 42.3 to 139 76.6 to 252

5 8.38 to 27.5 41.8 to 137 70.3 to 231 127 to 418

* Domestic values are presented as a range between 7% and 23% of the global values.

** Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn 

from a different part of the distribution. Values presented in the table are based on escalating 2007$ to 2010$ for 

consistency with other values presented in this notice, and incorporate the escalation of the SCC over time.
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Table 10.4.3 presents the cumulative monetary value of the economic benefits associated 

with NOX emissions reductions for each Efficiency Level, calculated using seven-percent and 

three-percent discount rates.

Table 10.4.3 ASHRAE Products Estimates of Present Value of NOX Emissions Reduction 

Under Efficiency Levels 

Eff. 

Level

3% discount rate 7% discount rate

(million 2011$)

Water-cooled and Evaporatively-cooled 

Products

(million 2011$)

1 0.02 to 0.25 0.01 to 0.12

2 0.02 to 0.24 0.01 to 0.10

3 0.06 to 0.64 0.03 to 0.28

4 0.09 to 0.92 0.04 to 0.40

5 0.09 to 0.95 0.04 to 0.42

VRF Water-source Heat Pumps

1 0.0 to 0.0 0.0 to 0.0

2 0.01 to 0.13 0.01 to 0.05

3 0.2 to 2.2 0.1 to 0.9

4 0.5 to 5.2 0.2 to 2.2

5 0.9 to 9.5 0.4 to 4.0

Computer Room Air Conditioners

1 0.04 to 0.46 0.02 to 0.22

2 0.6 to 6.1 0.3 to 2.7

3 2.4 to 24.6 1.0 to 10.7

4 6.0 to 61.4 2.6 to 26.6

5 10.7 to 109.8 4.6 to 47.6