Regulatory Impact Analysis: Development of Social Cost of Carbon Estimates

What GAO Found

To develop the 2010 and 2013 social cost of carbon estimates, the Office of Management and Budget (OMB) and Council of Economic Advisers convened and led an informal interagency working group in which four other offices from the Executive Office of the President (EOP) and six federal agencies participated. Participating agencies were the Environmental Protection Agency (EPA) and the Departments of Agriculture, Commerce, Energy, Transportation (DOT), and the Treasury. According to several working group participants, the working group included relevant subject-matter experts and the agencies likely to use the estimates in future rulemakings. According to OMB staff, there is no single approach for convening informal interagency working groups and no requirement that this type of working group should document its activities or proceedings. However, OMB and EPA participants stated that the working group documented all major issues discussed in the Technical Support Document, which is consistent with federal standards for internal control. According to the Technical Support Document and participants GAO interviewed, the working group's processes and methods reflected the following three principles:

Used consensus-based decision making. The working group used a consensus-based approach for making key decisions in developing the 2010 and 2013 estimates. Participants generally stated that they were satisfied that the Technical Support Document addressed individual comments on draft versions and reflected the overall consensus of the working group.

Relied on existing academic literature and models. The working group relied largely on existing academic literature and models to develop its estimates. Specifically, the working group used three prevalent academic models that integrate climate and economic data to estimate future economic effects from climate change. The group agreed on three modeling inputs reflecting the wide uncertainty in the academic literature, including discount rates. Once the group reached agreement, EPA officials—sometimes with the assistance of the model developers—calculated the estimates. All other model assumptions and features were unchanged by the working group, which weighted each model equally to calculate estimates. After the academic models were updated to reflect new scientific information, such as in sea level rise and associated damages, the working group used the updated models to revise its estimates in 2013, resulting in higher estimates.

Took steps to disclose limitations and incorporate new information. The Technical Support Document discloses several limitations of the estimates and areas that the working group identified as being in need of additional research. It also sets a goal of revisiting the estimates when substantially updated models become available. Since 2008, agencies have published dozens of regulatory actions for public comment that use various social cost of carbon estimates in regulatory analyses and, according to working group participants, agencies received many comments on the estimates throughout this process. Several participants told GAO that the working group decided to revise the estimates in 2013 after a number of public comments encouraged revisions because the models used to develop the 2010 estimates had been updated and used in peer-reviewed academic literature.

Why GAO Did This Study

Executive Order 12866 directs federal agencies to assess the economic effects of their proposed significant regulatory actions, including a determination that a regulation's benefits justify the costs. In 2008, a federal appeals court directed DOT to update a regulatory impact analysis with an estimate of the social cost of carbon—the dollar value of the net effects (damages and benefits) of an increase in emissions of carbon dioxide, a greenhouse gas.

In 2009, the Interagency Working Group on Social Cost of Carbon was convened to develop estimates for use governmentwide, and it issued final estimates in its 2010 Technical Support Document. In 2013, the group issued revised estimates that were about 50 percent higher than the 2010 estimates, which raised public interest.

GAO was asked to review the working group's development of social cost of carbon estimates. This report describes the participating entities and processes and methods they used to develop the 2010 and 2013 estimates. GAO reviewed executive orders, OMB guidance, the Technical Support Document, its 2013 update, and other key documents. GAO interviewed officials who participated in the working group on behalf of the EOP offices and agencies involved. GAO did not evaluate the quality of the working group's approach.

GAO is making no recommendations in this report. Of seven agencies, OMB and Treasury provided written or oral comments and generally agreed with the findings in this report. Other agencies provided technical comments only or had no comments.

For more information, contact J. Alfredo Gómez at (202) 512-3841 or gomezj@gao.gov.