#Wonk warning: a #thread on social cost of #carbon (SCC). We at @CVEPLLC expected @JoeBiden not just to reinstate higher SCC in his #dayone #climate order but also to look at incorporating #environmental #justice into it.

He did, and it matters. #OOTT /1
Background: when #federal #agencies write rules, they try to maximize net benefits or minimize net costs.

The goal is that adding up all benefits for (and costs to) society + all costs to (and benefits for) regulated parties should be > 0. /2
In this context, SCC offers a way for agencies to “monetize” societal benefits of #climate rules. Oversimplification version: Benefit = (tons of GHG avoided) * (SCC, in $/ton). There are couple of quirks, tho. /3
Analyses of net benefits commingle financial costs to regulated parties (often a negative number) with avoided societal costs of #climate change (usually a positive number). Let me be clear: both things matter. /4
The difference, though, is that financial costs to regulated parties often translate into companies spending money up front (in “year zero” or early years). Benefits often come later b/c it can take a while for mitigation efforts to come onstream. /5
Time value of #money is also a thing (i.e., $1 today > $1 in 10Y). So, agencies take present values (PV) of costs and benefits. But that diminishes benefits that are backloaded. (Visuals to explain just ahead). /6
Agencies sometimes average net benefits over time to “smudge” away early net-cost years (like concealer for balance sheet blemishes). Agencies can also be subjective about what they count, and how: benefits that can be quantified & costs that can be minimized usually are. /7
Some things don’t get counted at all. And then there’s the question of whether “co-benefits” of rules should count. It is easy for cost-benefit analysts of #climate rules to get lost in the weeds (insert #weed joke). /8
SCC is malleable, too. The Trump Admin. trimmed SCC so it only counted U.S. domestic #climate impacts, a ~7.3x downsizing. That made Obama’s rules look more costly, and Trump used the resulting, on-paper costs to justify #deregulation. /9
It works the other way, too: a higher SCC can create more cost-benefit “room” for #climate rules to be stricter without looking more costly (i.e., cost-benefit analyses can show net on-paper benefits despite large real-world compliance outlays by regulated entities). /10
Counting global #climate effects would make SCC bigger again. We don’t know yet how #environmental #justice impacts might get monetized. It could mean a still-higher SCC when all is said and done, tho. But let’s go to visuals. /11
Simplified scenario where industry pays all costs, society receives all benefits: $500 delivers 5 MtCO2/Y for 5Y. At a SCC of $25/MtCO2 and 7% discount rate, net present value (NPV) works out to $13. /12
If we assume #environmental #justice adds $5/MtCO2 to SCC, NPV goes up to $115. Of course, that leaves “room” for deeper emissions cuts (read: industry outlays)… /13
…and further cuts could generate on-paper net benefits, even if they came with diminishing returns to scale (i.e., $200 for 1 incremental MtCO2/Y vs. $100 per MtCO2/Y for the first 5 MtCO2/Y). /14
Which brings up something else. @JoeBiden’s #climate order also called for consideration of #intergenerational #equity. How? Dunno. Maybe a lower discount rate (i.e., valuing the future more like the present)? … /15
At 2% instead of 7%, the NPV of net benefits rises to $148, diseconomies of scale and all. Would that leave room for another 0.5 MtCO2/Y even at $300 per MtCO2/Y? … /16
…why, yes, it could. In short, counting #environmental #justice and #intergenerational #equity in #climate cost-benefit analyses could theoretically justify bigger non-maintenance capex obligations for emitters. /17
Of course, this hypothetical industry might argue against bearing the brunt of diminishing #climate returns. Industry might win that argument IRL, but much seems likely to depend on process. /18
Which brings up another thing @JoeBiden did on #dayone: he issued an order calling for a re-think of the #regulatory process, cost-benefit analysis and all.

Bottom line: many questions yet to be asked & answered (and many reports to write for @CVEPLLC clients!) /fin
** that is, be used by *agencies* to justify...

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Kevin Book

Kevin Book Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!