Commenter 9681 states the IWG used solid economic tools to address uncertainty and ought to go further in capturing the full extent of its implications. The IWG was rigorous in addressing uncertainty. First, it conducted Monte Carlo simulations over the IAMs specifying different possible outcomes for climate sensitivity (represented by a Roe and Baker Distribution). It also used five different emissions growth scenarios and three discount rates. Second, the IWG reported the various moments and percentiles of the resulting SCC estimates. Third, the IWG put in place an updating process, e.g., the 2013 revision, which updates the models as new information becomes available. As such, the IWG used the various tools that economists have developed over time to address the uncertainty inherent in estimating the economic cost of pollution: reporting various measures of uncertainty, using Monte Carlo simulations, and updating estimates as evolving research advances our knowledge of climate change. The Monte Carlo framework took a step toward addressing what is probably the most concerning aspect of climate change, the potential for catastrophic damages, i.e., low probability/high damage events. These damages come from: uncertainty in the underlying parameters in IAMs, including the climate sensitivity parameter; climate tipping point thresholds that, when crossed, cause rapid, often irreversible changes in ecosystem characteristics; and black swan events which refer to unknown unknowns. The analysis used a right-skewed distribution of temperature (as captured in the Roe Baker climate sensitivity parameter) and an increasing, strictly convex damage function; this correctly results in right-skewed distributions of damage and SCC estimates. By using the mean values of these estimates instead of the median, IWG estimates partially captured the effects of small probability, higher damages from high-level warming events, and as a result come to the wrong conclusions. An everyday analogy might be if an individual trying to watch his weight by dieting focused on median calorie intake per meal in a given month instead of the mean: the median calorie meal would be the meal such that half of all meals had calories below its value, and half above; the mean calorie meal would be the total number of calories in a month divided by the number of meals eaten. Dieters often deviate from their plan by occasionally having normal or excessive-calorie meals. If they focused on their median calorie intake, they'd never count the high calorie deviations and would undermine their efforts to lose weight (or, indeed, could even gain weight). Rather than the median, the mean would be the correct metric to use because it would capture these infrequent, high-calorie breaks with the diet. Another analogy is airplane safety regulation: safety is protected by guarding against the low-probability but highly dangerous events. With climate change we do not have the luxury of knowing how damaging the extremes could be; all we know is that there is a very real possibility they could be devastating.)  To reflect uncertainty in estimates resulting from the right-skewed distribution of SCC estimates, the IWG reported the SCC value for the 95th percentile from the central 3% discount rate distribution.  This is done to reflect the estimation uncertainty in terms of the possibility of higher-than-expected economic impacts from climate change. While the IAMs take different approaches to explicitly modeling tipping points, which to a great extent is lacking in current versions of FUND and DICE, the IWG improved (but in no way fixed) the representation of uncertain catastrophic damages with the Monte Carlo analysis. Still, black swan events go completely unaddressed in the IWG modeling framework, and to the extent that society has a strong desire to prevent the occurrence of catastrophic events that is not reflected in the estimates.
 Commenter (8925) states the uncertainty in SCC estimates has not yet been fully characterized, nor the sensitivity of the SCC fully evaluated. Commenter adds that this is true for uncertainties that were considered in the USG methods, as well as uncertainties that were not considered. Commenter continues that for many of the assumptions, the documentation does not discuss alternatives and their potential implications, nor establish that the sensitivities currently evaluated are representative and therefore justified. Commenter similarly states that a number of uncertainties were not evaluated, including emissions and energy intensities and technological change, carbon cycle modeling , radiative forcing , damage functions , adaptation, and 2300 extensions.(See comment for reference) Commenter concludes that without more comprehensive consideration of uncertainty, it is difficult to know whether the current estimates are biased, or if the uncertainty reflected in current estimates is sufficient and the estimates robust to alternative assumptions and additional uncertainties.
 One commenter 8925 states the robustness of the current USG SCC estimates has not been established, or sufficiently evaluated.
Response 4.4-4: The comments regarding the consideration of uncertainty in SC-CO2 estimates mirror those submitted to the Office of Management and Budget's separate comment solicitation on the SC-CO2 (78 FR 70586; November 26, 2013).  As a member of the interagency working group (IWG) on SC-CO2, EPA has carefully examined and evaluated comments submitted to OMB's separate solicitation.  EPA has also carefully examined and evaluated all comments received regarding SC-CO2 through this rulemaking process and determined that the IWG responses to the comments on the OMB solicitation address the process comments summarized in this section. Specifically, EPA concurs with the IWG's response to these comments and hereby incorporates them by reference.

After careful evaluation of the full range of comments and associated technical issues described in section 4.5, EPA has determined that it will continue to use the current SC-CO2 estimates until further updates can be made to reflect forthcoming guidance from the Academies.  EPA believes that the current estimates continue to represent the best scientific information on the impacts of climate change available in a form appropriate for incorporating the damages from incremental CO2 emissions changes into regulatory analysis.  Therefore, EPA has presented the current SC-CO2 estimates in the analysis of illustrative benefit-cost scenarios for new sources in RIA Chapter 5. EPA will continue to consider these comments and will share the recommendations with the IWG as it moves forward with the Academies process.

The remainder of this section elaborates on the uncertainty comments in the context of this rulemaking.

EPA agrees with the comments that supported the rigor of its uncertainty analysis. Uncertainty is inherent in all regulatory impact analysis. It is especially salient in regards to the SC-CO2 estimates because of their broad spatial and temporal dimensions. In addition to conducting Monte Carlo analysis for a subset of key parameters, the EPA and the other members of the IWG included extensive discussion of uncertainty in the TSDs, and the documentation for the individual IAMs themselves contains additional discussion of the assumptions and uncertainties in the models. The 2010 TSD and the updated 2013 TSD provided visual depictions of the distributions of the SC-CO2 estimates in addition to detailed statistics including percentiles and higher order moments. In addition to the extensive information provided in the TSDs, the IWG has provided the full range of model results to outside researchers upon request and will continue to do so.

Regarding comments on uncertainty in the context of the socioeconomic-emission scenarios, see 4.4-1.

The 2010 TSD reports SC-CO2 estimates out to one decimal place (i.e., at least two significant digits) and the current TSD reports to the nearest dollar (i.e., two or three significant digits, depending on the year and discount rate/statistic). EPA and the other members of the IWG chose not to use decimal places in the 2013 TSD to avoid the impression of artificial precision but will also explore presentation with a consistent number of significant digits. EPA and the other IWG members welcome the recommendations to strengthen the characterization of uncertainty and plan to seek external expert advice on the technical merits and challenges of potential approaches to improve the characterization and analysis of uncertainty in future updates.

Regarding comments on the modeling of uncertainty in the SC-CO2 analysis, including the uncertainty explicitly represented in the IAMs and whether it captures the full range of uncertainty of the "true" value of the SC-CO2, see section 4.4- 8.

EPA disagrees with the comments stating that the SC-CO2 is neither useful nor appropriate because of uncertainty, the broad range of estimates.  EPA also disagrees that it is inappropriate to try to value the impacts of reductions in CO2 emissions.  EPA notes that in 2007, the Ninth Circuit Court remanded a fuel economy rule to DOT for failing to monetize the benefits of the CO2 emissions reductions in its regulatory impact analysis, noting that "the value of carbon emissions reduction is certainly not zero."

All regulatory impact analysis involves uncertainty. EPA acknowledges uncertainty in the SC-CO2 estimates but disagrees that the uncertainty is so great as to undermine use of the SC-CO2 estimates in regulatory impact analysis. The uncertainty in the SC-CO2 estimates is fully acknowledged and comprehensively discussed in the TSDs and supporting academic literature. While uncertainty must be acknowledged and addressed in regulatory impact analyses, even an uncertain analysis provides useful information to decision makers and the public. For example, if an analysis shows that benefits of a policy option consistently do (or do not) justify costs even over a broad range of estimates, this may increase confidence in the robustness of this conclusion. Conversely, if choices among parameter estimates within a plausible range significantly affect the conclusions of the analysis, this is an important consideration in deciding how to weigh the analytical results in the decision making process. The presence of uncertainty is thus not a reason to exclude the best available estimates of quantified/monetized benefits, as long as it is appropriately characterized. Rather, good regulatory practice requires that agencies use the best available scientific, technical and economic information to derive the best estimates of costs and benefits that they can, and then communicate to the public the limitations and uncertainties of the analyses. The RIA for this rulemaking and the SCC TSDs clearly discuss the limitations and uncertainties of the analysis. As noted in the RIA and TSDs, EPA is committed to periodic updates in the estimates to reflect ongoing developments in our understanding of the science and economics of climate change, including the treatment of uncertainty.

4.4.5 Process-related Concerns

Many commenters either voiced support for or criticized particular aspects of the interagency process used to develop the SC-CO2 estimates. Process issues raised included consistency with applicable OMB guidance documents, peer review, transparency, opportunity for public comment, and appropriate use of the estimates.
Numerous comments were made concerning peer review of the SC-CO2 and supporting models (9685, 9396, 10618, 9194, 8966, 9423, 8032, 8925, 8966, 10095, 10662, 8032, 9194, 9422, 9195).

Commenter 8925 states the USG SCC modeling application has not been explicitly peer reviewed, and two commenters (8925, 9592) state that the Administration should also consider model-specific peer review. Commenter explains that there is a significant difference between model peer review and peer review of an application of the model. Commenter adds that peer review of all three models could substantiate whether or not all of the models used are of equivalent caliber, and similar enough structurally. Commenter 9592 concludes that EPA should withdraw the SCC from use in any rulemaking where the SCC is used to justify and regulation until the peer review and public comment process has transpired.
Other comments regarding peer-review, transparency, and public comment included:
   * EPA, as a participant in the IWG, must subject the Technical Support Documents on the Social Cost of Carbon to independent peer review as directed by the President and mandated by the Information Quality Act (IQA) guidelines for Highly Influential Assessments. President Obama has stressed the importance of adhering to established scientific procedures, including independent peer review, when making policy decisions. EPA has chosen to ignore this clear mandate in the instance of the SCC TSD's and the use in rulemaking. In addition to general public comment, independent peer review of scientific assessments is essential including: the models and the formulations of key drivers of the models including emissions, CO2 concentrations, temperature response to the natural forcings, sea level rise, and the details of the elements of "damage function" is required.
   * The EPA should subject the Interagency Working Group's Social Cost of Carbon TSD to independent peer review before it can use the SCC any rulemaking. The principles for this process are stipulated in the Information Quality Act (signed by President Clinton in 2000) implemented through the 2005 guidelines for peer review. The OMB guidance recognizes that OMB is responsible for overseeing compliance with its rules regarding the quality of disseminated information, which include the peer review guidance. This is a statutory responsibility under 44 U.S.C. Section 3504(d)(1), which is incorporated by reference into the IQA. The OMB peer review guidance states "OIRA [of OMB], in consultation with OSTP, shall be responsible for overseeing implementation of this Bulletin."
   * OIRA could not approve any final rule using the SCC without ensuring that its peer review guidance has been fully implemented. At this time, it would be impossible for OIRA to do so until EPA has completed the required peer review. The SCC assessment is a "highly influential scientific assessment" ("HISA") under the definition of a HISA in the 2005 OMB IQA peer review guidance. The OMB guidance contains "requirements" for the conduct of impartial outside peer reviews of highly influential scientific assessments. The U.S. Court of Appeals for the D.C. Circuit determined in Prime Time Int'l, Inc. v. Vilsack (599 F.3d 678, 685 (D.C. Cir. 2010)) that OMB guidance issued pursuant to the Information Quality Act is legally binding. Other legal precedents confirm that the peer review guidance is a legally binding and enforceable "legislative rule."
   * The provisions for HISAs are mandatory. A key term in the HISA definition concerns the meaning of the term "assessments." The OMB guidance also distinguishes between what is discretionary and what is mandatory, based on use of the terms "requirements," "shall," and "must." The term "scientific assessment" is defined in the OMB guidance as requiring a synthesis of various inputs. The OMB guidance definition states that it means "an evaluation of a body of scientific or technical knowledge, which typically synthesizes multiple factual inputs, data, models, assumptions, and/or applies best professional judgment to bridge uncertainties in the available information." The definition expressly includes "model assessments."
   * The OMB guidance contains numerous mandatory "requirements" for what must be done. The OMB peer review guidance has been recognized as mandatory by the EPA Inspector General. On September 26, 2011, the Inspector General transmitted a report focusing on whether EPA had complied with OMB's and its own peer review requirements in issuing its greenhouse gas endangerment finding. The Inspector General concluded that EPA had not complied with OMB's peer review "requirements" for HISAs in certain respects. He also recommended that EPA revise its internal PEER REVIEW HANDBOOK "to accurately reflect OMB requirements..." Unfortunately EPA has chosen to ignore the IG's clear directive in its application of the SCC. All HISA's (highly influential scientific assessment(s)) must be peer reviewed independent of the sponsoring agency. Public comment on a rulemaking proposal is not a substitute for peer review. EPA must instruct the peer reviewers to prepare a peer review report that will be made public. In the case of HISAs, EPA must prepare a written response to the report. The IAMS have not been subjected to the required "Highly Influential Scientific Assessment" peer review.
   * Even though the new versions of the three integrated assessment models (IAM) used by the U.S. government to estimate the SCC (DICE, FUND, and PAGE) were published in the "peer reviewed literature", the IQA requires a higher standard of peer review as described above. The fact that all of the models have been "peer reviewed" does not mean that any of them have been deemed to have any skill for predicting future emissions, temperatures, sea level rise or damages. EPA apparently has assumed that "new" means "better". EPA surely knows this is not the case in terms of the IPCC models (AR4, AR5) that are used to provide the critical climate sensitivity input. The "appearance" in economics journals is not adequate since the main drivers of the impacts are related to science and technology issues, not economics. The competence of the journal review should have been questioned by EPA and the requirements of the IQA followed.
   *  SCC2013 acknowledged the continued limitations of the approach taken by the interagency group in 2010 (documented in the original 2010 TSD). SCC2013 did not revisit other assumptions with regard to the discount rate, reference case socioeconomic and emission scenarios, or equilibrium climate sensitivity. This was another major failure of EPA. Many additional peer review papers were available and should have been considered in the SCC2013 update. The developers of the models have an inherent conflict and are not acceptable judges of the adequacy of the peer review for their "updates".
   * The issue of public access to documentation and data is also a serious concern. All of the model documentation, formulations based on specific papers or interpretations, validation data and results, model code and cited papers should be available on a public website so that the public can examine the material and independently confirm the calculations of the models and use alternative input. As EPA knows, this is not the case. EPA has established the CREM website for all of the models it uses in regulatory analysis. The IAMs are missing. EPA claims that the IAMs were "updated" and "used" in peer-reviewed literature. However there is no documentation that the IAMs used in either SCC 2010 or SCC 2013/2013rev were ever independently peer-reviewed and validated as required by OMB's legally binding guidelines. EPA should immediately terminate this proceeding until the current OMB process of comment, response and resolution on Docket OMB-2013:0007-0001 has been completed.
   * The SCC fails in terms of process and transparency. The SCC is the product of a closed secretive process. The SCC fails to comply with OMB's guidance for developing influential policy-relevant information under the Information Quality Act, especially for a Highly Influential Scientific Assessment (HISA). The Integrated Assessment Models (IAMs) with inputs used for the SCC analysis were not subject to independent peer review. The results of the SCC are fatally flawed as a result of significant cumulative errors.
Some commenters stated that the modeling used does not provide a sufficient range of accuracy for policy-making purposes. OMB and the IWG failed to use the latest science which indicates that the equilibrium climate sensitivity (ECS) distributions used by the modelers caused the SCC to be over-stated. The models employed and the assumptions used were not subjected to peer review nor were the 2010 and 2013 SCC estimates developed by the IWG.
To meet to its obligations under the Information Quality Act guidelines and President Obama's directive on Transparency, EPA should promptly post on regulations.gov the following information: 1. Initial and all subsequent drafts of the SCC2010, SCC2013 and SCC2013r reports, 2. All comments provided on each draft and documentation on how the comments were resolved, 3. The names of the individuals responsible for the drafts and the resolution of the comments, 4. Full documentation of every version of the Integrated Assessment Models (DICE, FUND, PAGE), including: a. The versions of the model used in SCC 2010, SCC 2013 and SCC 2013r, b. The input to each run used in the analysis, c. The output of each model run, including the emissions as a function of time, the concentrations as a function of time, the temperature as a function of time, and the sea level rise as a function of temperature, d. Complete documentation of the formulas programmed in the models, e. Complete user instructions that will allow the public to run the models and replicate the results,  f. All data used to validate the models, and g. All validation run results. 5. The journal articles where each version of the IAMs used was "peer reviewed", and a. All cites to articles in which the results of the models were used (if any articles appear in pay-walled journals arrangements must be made for free public access), and b. All comments by EPA and any other USG agencies, employees, or contractors made as either peer reviewers or potential users.
Commenter 9396 states use of the Social Cost of Carbon (SCC) in EPA Rulemaking violates statutory administrative requirements, Administration guidelines and the norms of peer review. The SCC is a metric developed by an Inter-agency Working Group (IWG) to place a cost on CO2 emissions. The IWG defines the SCC as an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. The IWG issued an initial estimate of the SCC in 2010 without notice and public comment. In May of 2013, the IWG, without notice and public comment, adjusted the calculations used to account for the SCC. The change implemented in the TSD 2013 revision substantially increased the cost estimate to a degree that will have an identifiable and meaningful impact on future regulatory decisions. The IWG held no public meetings and no public input was solicited prior to either the 2010 or 2013 publication of the SCC.
Commenter 9396 Commenter's concerns with the SCC are outlined in detail later in these comments. It is critical that the models, assumptions used in the models and the entire IWG administrative process, including access to all data and analyses used, be opened to all stakeholders for comment and review and that the entire process fully comply with Executive Branch guidelines, the Administrative Procedures Act (APA) and the Data Quality Act (DQA.)
Commenter 9396 states that the development of the Social Cost of Carbon violates the Administrative Procedures Act (APA) and the Information Quality Act (IQA) and cannot be used by the EPA in this rulemaking. Uncertainties with the models and assumptions used to develop the SCC render the SCC inappropriate for policy and rulemaking. EPA refers to the social cost of carbon (SCC) in the Regulatory Impact Analysis (RIA) for this proposed rule. The SCC is a metric developed by an Inter-agency Working Group (IWG) formed by the Administration, headed by the Office of Management and Budget (OMB) and the Council of Economic Advisors (CEA), to place a cost on CO2 emissions. According to an EPA letter to ranking member of the Senate Environment and Public Works Committee (EPW), it appears that much, if not all, of the analysis developing the SCC was done by EPA. The IWG defines the SCC as an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. The same report goes on to state that [i]t 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. In this rulemaking, EPA used the SCC as one of its screens to justify the designation of partial CCS as BSER for new coal plants. In response to an IQA petition submitted to OMB on September 4, 2013 by a group of trade associations, OMB solicited public comment on the SCC through a public comment process that applies to all Federal rulemakings and indicated that the SCC was intended for use by all agencies measuring the social cost of carbon emissions as they evaluate costs and benefits of rules. Thus OMB identified development of the SCC as a rulemaking to be used in other rulemakings.
 The Interagency Working Group's (IWG) use of the Integrated Assessment Models (IAMs) do not meet the IQA standards for policy-making including utility, transparency, and robustness. Commenters 9685 and 9687 raised issue with EPA's use of the Social Cost of Carbon (SCC).  The commenters believe that E.O. 12866's mandate to perform a transparent cost-benefit analysis was not met with EPA's significant errors using the SCC in its regulatory analysis.  The commenters stated that EPA violated E.O. 12866 and offer a numbered list of requirements that EPA must comply with prior to issuing any SCC technical support document or proposing any rule pursuant to E.O. 12866 that include the following:
   1. EPA must post a peer review plan in the peer review Agenda on its Science Inventory and establish a mechanism whereby the public can comment on the plan. It should also consider inviting public and/or professional society nominations for the independent peer review group. EPA should post a draft charge to the peer reviewers and request comment on the draft charge.
   2. EPA must select a group of peer reviewers. The selected peer reviewers must be independent from the government, be impartial experts, and be sufficient in number to fairly and impartially represent expertise in science, technology, economics, statistics, and modeling. The peer reviewers must be free of any conflict of interest. Selection should be in conformance with National Academy procedures, as indicated in the OMB guidance.
   3. EPA must develop a charge for the peer reviewers that instructs them to address all the assessment issues (including costs) reflected in the SCC, while avoiding allowing any policy considerations that would bias their deliberations and conclusions to intrude. The charge must also include instruction on the information quality standards in OMB's 2002 general IQA government-wide guidance. The agency (either in the charge or otherwise) must instruct the peer reviewers to prepare a written report stating their conclusions in response to the charge, and advise them that the report will be made public.
   4. EPA must give the peer reviewers and the public access to all materials relevant to their review, including the ability to run the models.
   5. EPA must sponsor at least one public meeting of the peer review group at which interested members of the public can make oral comments. It must also provide an opportunity for written public comments. OMB must ensure that the peer reviewers have access to all significant public comments on the scientific/technology/economics evaluation issues.
   6. Upon completion of the peer review, EPA must make available to the public the peer reviewers' report, the charge, and the reviewers' names, affiliations, and areas of expertise.
   7. EPA must provide a written response to the peer review report in which it discusses whether and why it agrees or disagrees with its conclusions.
EPA must require that any agency include in the administrative record for any final rule that relies on the SCC a "certification" explaining how the agency has complied with the OMB peer review guidance and the applicable (2002) general information quality guidelines. Other commenters expressed support in a joint letter (9681) for the process used to develop the SCC estimates:
      The IWG's choice of three IAMs was fully justified but should still be revisited in its next iteration. In its calculations of the SCC, the IWG relied on the three Integrated Assessment Models (IAMs) available at the time, all with a long record of peer-reviewed publications that link physical and economic effects: the Dynamic Integrated Model of Climate and the Economy (DICE), the Climate Framework for Uncertainty, Negotiation, and Distribution (FUND), and Policy Analysis of the Greenhouse Effect (PAGE). The government's first SCC estimates, published in 2010, used the then-current versions of the models; the recent update employed revised, peer-reviewed versions of the models but maintained the underlying assumptions of the 2010 IWG analysis. As stated by the 2010 IWG, the main objective of [the 2010 IWG modeling] process was to develop a range of SCC values using a defensible set of input assumptions grounded in the existing scientific and economic literatures. They represent the state-of-the-art IAMs. Each of these models has been developed over decades of research, and has been subject to rigorous peer review, documented in the published literature.
The analytic work of the IWG has been transparent. The 2010 Technical Support Document (TSD) set out in detail the IWG's decision-making process with respect to how it assessed and employed the models. Because the 2013 IWG made no changes to the input assumptions and procedures for deriving its SCC estimates, the 2013 TSD discusses only how the three Integrated Assessment Models (IAMs) used in the analysis were updated in the academic literature over the three-year interim period by the independent researchers who have developed these models. The 2013 TSD also establishes that the increase in the SCC estimate from 2010 to 2013 resulted solely from updates to the three underlying IAMs.
The OMB recently created a further opportunity for public comments and transparent review specifically on the calculation of the social cost of carbon. Additionally, the comment period on these greenhouse gas proposed performance standards for power plants are yet another opportunity for continued dialogue about areas requiring further study. Such repeated comment processes demonstrate that the IWG's SCC estimates were developed and are being used transparently. Given their strong grounding in the best science available, nothing should prevent the current, continued use of this well-established estimate. As economic and scientific research continues to develop, future revisions will be able to further refine existing estimates based on the latest peer-reviewed literature and the latest updates to the quality of the overall modeling exercise. Commenter contends that the SCC is an important and accepted tool for regulatory policy-making based on well-established law and fundamental economics. Despite recent attacks from fossil fuel and other industry groups, the legal and analytic basis for using the SCC is clear and well established. Several industry groups recently submitted a petition to OMB and the individual agencies involved in the IWG requesting the prohibition of the use of the 2010 and 2013 SCC estimates by the government and the withdrawal of the supporting documents that describe the calculation of the SCC. In addition some of the same parties recently weighed in on the use of the SCC in a Department of Energy rulemaking. In particular, petitioners contend: 1) that estimates of the SCC are purportedly too uncertain and imprecise to be used for regulatory analysis. The petitioners argue that alleged uncertainty and imprecision renders the SCC an illegitimate tool for use in regulatory impact analyses. They discuss a number of technical methodological approaches reflected in SCC models used by the IWG, such as the time horizon of the analysis and the choices of which direct and indirect benefits to include, and mistakenly conclude that the limitations of SCC estimates preclude the IWG's use of them. Petitioners misrepresent both the view of the Intergovernmental Panel on Climate Change (IPCC) and economists own assessments of SCC limitations. 2) That the IWG supposedly did not follow appropriate protocols in either its estimation or use of the SCC. The petitioners claim that the IWG failed to sufficiently describe the uncertainties in its analysis; made inappropriate technical choices with respect to discount rates and the choice of a global rather than domestic SCC; failed to go beyond the extensive peer review of the underlying models and have its use of the models peer reviewed; and denied stakeholders proper notice or opportunity to comment on the IWG's use of updated versions of the underlying models. 3) In light of these two claims, these industry critics argue that the SCC must be banned from use while it undergoes a wholly new public review process. They assert that the IWG's SCC estimates are arbitrary and capricious, and likely overestimated. While the SCC would be under re-review, the petitioners request that OMB require agencies to assign a value of zero to carbon pollution damages. The call for best available techniques addresses all of the petitioners' specific comments around appropriate time periods and other modeling choices: The IWG's use of Integrated Assessment Models (IAMs) reflects the best available, peer-reviewed science to tally the benefits and costs of specific regulations with impacts on carbon dioxide emissions. The IAMs include benefits and costs that have been quantified to date. Other modeling assumptions represent reasonable choices on the part of the IWG. For example, cutting off the analysis after around 300 years simply reflects the fact that any benefits and costs thereafter are de minimis given the strong impact discounting has on reducing the value of distant effects in the SCC. Similarly, petitioners assert that assumptions around socio-economic pathways do not properly reflect the impact of current regulations and, therefore, lead to double counting. The IWG should indeed periodically update its choice of socio-economic scenarios to reflect major changes in economic growth projections and other factors influencing emissions trajectories. However, the long-term emissions impact of any one particular energy efficiency or other carbon reduction standard is only marginal to the trajectory of socio-economic scenarios, minimizing any risk of double counting the regulatory benefits. Second, while agencies are expected to use the best available science to inform their regulatory impact analyses, there is no legal basis for demanding that an agency's analysis itself undergo academic peer review. What is required is that agencies undertaking rulemakings provide public notice and an opportunity for public comment on their analyses, and respond to those comments. The petitioners have had multiple opportunities to comment on the IWG's analysis and will have additional opportunities to do so in future rulemakings. The IWG's cost of carbon estimates have been referenced in more than forty rulemakings to date, and agencies have responded to relevant comments submitted thus far. Indeed, many of the changes the IWG made in its updated methodology were in response to such comments. This comment period from EPA provides yet another opportunity for feedback. The bottom line is that the IWG has properly and lawfully used the best available techniques to quantify the benefits of carbon emission reductions, basing its analysis on the peer-reviewed literature. When agencies use the IWG's estimates of the SCC to calculate the benefits of a rulemaking, they have taken, and will continue to take, comment on the SCC and the process used to derive that value. That is what the law and good policy requires. The petitioners offer no alternative estimation procedure. They simply ask OMB and rulemaking agencies to contravene the Ninth Circuit's decision by substituting zero for the IWG's best estimate of the costs of carbon pollution. This should be seen for the cynical tactic that it is: an attempt to delay any action to cut carbon pollution.
Commenter 9681 continues the IWG's analytic process was science-based, open, and transparent. To facilitate accounting for the costs of climate impacts and the benefits of reducing carbon pollution in regulatory proceedings undertaken by different agencies, the United States government assembled the IWG in 2010 to develop an estimate of a social cost of carbon that can be utilized in rulemakings and other pertinent settings across the federal government.5 The 2010 estimate of carbon pollution reduction benefits has been used in several benefit-cost analyses related to federal rulemakings. The IWG recently released an updated set of SCC estimates, centered at approximately $37 per metric ton of CO2 for emissions in the year 2015, in 2007 dollars at a 3% discount rate. The 2013 SCC estimates are higher than those from 2010, reflecting the growing understanding of the costs that climate impacts will impose on society. (The 2010 central estimate for 2015 was $24/ton.) The increase in the SCC estimate is important because it reflects the growing scientific and economic research on the risks and costs of climate change, but is still very likely an underestimate of the economic cost of carbon emissions. The increase is also necessary given the costs of climate change that we are already experiencing, such as those associated with sea level rise and rising temperatures. Climate change is making coastal flooding, drought, and impacts from extreme weather worse.
Commenter 9194 states the SCC calculation ignores requirements of OMB's Circular A-4 to calculate both benefits and costs for regulatory purposes.
Commenter 9681 states they strongly affirm that the current Social Cost of Carbon (SCC) values are sufficiently robust and accurate to continue to be the basis for regulatory analysis going forward. As demonstrated below, if anything, current values are significant underestimates of the SCC. As economic and scientific research continues to develop in the future, the value should be revised, and we also offer recommendations for that future revision. Presidential orders on regulatory analysis also support use of a global SCC value. In 2012, President Obama issued Executive Order 13609 on promoting international regulatory cooperation. The Order built on his previous Executive Order 13563, which in turn had affirmed its 1993 predecessor, Executive Order 12866, in requiring benefit-cost analysis of significant federal regulations. Though White House guidance published in 2003 on regulatory impact analysis under E.O. 12866 assumed that most analyses would focus on domestic costs and benefits, it ultimately deferred to the discretion of regulatory agencies on whether to evaluate "effects beyond the borders of the United States." More importantly, since the publication of that guidance, President Obama has issued his own supplemental orders on regulatory analysis, including E.O. 13609, which clarified the importance of international cooperation to achieve U.S. regulatory goals. This 2012 order explicitly recognizes that significant regulations can have "significant international impacts," and it calls on federal agencies to work toward "best practices for international regulatory cooperation with respect to regulatory development." By employing a global SCC value in U.S. regulatory development, and by encouraging other countries to follow that best practice and account for the significant international impacts of their own climate policies, federal agencies will advance the mission of this presidential order on regulatory harmonization.

Commenter 9194 states the IWG/OMB process is fatally flawed in that it fails to calculate the SCC using OMB's prescribed "base case" discount rate of 7% and impermissibly calculates global benefits instead of domestic benefits. Commenter 9194-6571 continues the SCC calculation ignores requirements of OMB's Circular A-4 to calculate both benefits and costs for regulatory purposes. Also, Commenter 9194-6573 states that rulemaking is subject to the Administrative Procedures Act (APA) which requires public notice and identification of the legal authority for the rulemaking. OMB has provided no identification of a statutory authority or basis for development of the SCC for use in all federal rulemaking. Use of the SCC in this rule making will constitute a violation of the APA and the Information Quality Act (IQA).
Commenter 9396 states the SCC estimates are considered under the premise that U.S. citizens will forego GHG generating activities (wealth creation/GDP) in the present to potentially forestall global change for the benefit of future global generations 100-300 years into the future. For the purposes of environmental review, the increased estimated benefit of GHG emission reductions helps justify the cost of new regulations by increasing the presumed benefits of the regulation.  The IWG issued an initial estimate of the SCC in 2010 without notice and public comment. In May of 2013, the IWG, without notice and public comment, adjusted the calculations used to account for the SCC. The change implemented in the TSD 2013 revision substantially increased the cost estimate to a degree that will have an identifiable and meaningful impact on future regulatory decisions. The IWG held no public meetings and no public input was solicited prior to publication of either SCC. Efforts by non-governmental entities to secure information regarding which officials served on the IWG were thwarted and virtually no information regarding the meetings held by the IWG, meeting minutes, background materials, underlying data or preliminary analyses have been made available to the public. Indeed, at this time, the public has not even been advised who actually attended the meetings. The SCC estimate adjustments made for 2013 are much higher than the ones reported in the 2010 TSD. By way of comparison, the four 2020 SCC (measured as the benefit per metric ton of CO2 emissions) estimates reported in the 2010 TSD were $7, $26, $42 and $81 using 2007 dollar values. The updated SCC estimates for 2020 now are almost double that of the 2010 TSD. The updated numbers for 2020 are $12, $43, $65 and $129 using 2007 dollar values. Each of these numbers ascribes a deemed damage function to each ton of CO2 emitted into the atmosphere in a manner that ascribes a level of certainty that far exceeds what the Integrated Assessment Models (IAM) actually deliver. This unfounded level of certainty is further exacerbated by the ascription of a single number based on averaging these numbers to develop the single number of $39 in 2013. Commenter's major concern is how the SCC will be used to influence decisions regarding energy generation options in the future. In the table below by using the IWG SCC median value, a typical coal-fired power plant would have an annual social cost of over $210 million, with over $154 million attributed to CO2 based on the SCC.75 Even with an environmentally preferred NGCC power plant, the annual social cost is over $74 million with $73 million of that cost coming from the SCC. That is a startling 98% of the social cost being attributed to CO2 and the SCC. The question is, does this seem reasonable?
Commenter 9396 states the decisions rendered by the IWG regarding how best to account for these variables result in outcomes that are significant for the regulated industry. As Resources for the Future explained in a recent White Paper on the SCC: The impact of SCC numbers is not theoretical and has consequences for the government regulatory process and therefore for the strength of regulations on climate change that emerge from it. Application of this tool can be problematic to achieving optimum outcomes for society. A growing literature indicates that developing the SCC requires assumptions that go well beyond the usual boundaries of science or economics. It requires many judgment calls that are hidden in complex economic models and largely invisible to policymakers and stakeholders.

Commenters 10098, 8925, 8925, 8925, 10087 state generally that the SCC should not be used in any rulemaking procedure due to issues that include lack of transparency in formulating the SCC estimates, reliance upon modeling with inputs that lacked peer review, the failure to disclose and quantify key uncertainties involved in the modeling, and the use of a global benefit estimate that severely limits the SCC's utility. Commenter 8925 states the description and discussion of the 2013 revisions is insufficient for understanding and interpreting the changes in the USG SCC results and that additional justification for many of the revisions would be helpful (e.g., space heating expenditure reductions, transient temperature responses, constant indirect methane radiative forcing effect, saturation, regional scaling factors, probability of a discontinuity, adaptation, CO2 absorption, regional climate modeling). Commenter continues that discussion of uncertainty would be helpful, and it would be reasonable to explain differences across models for similar components (e.g., sea level rise, transient temperature response, saturation, adaptation). Commenter closes stating it is unclear which revised elements were peer reviewed, and that a clear citation for each of the revisions in each model would be useful. Commenter 8925 states the SCC TSDs methods are not fully clear, basic information is lacking, and commenter requests  additional detail and discussion regarding the following: PAGE and FUND probabilistic methods and their differences; undiscounted damages over time from each model and for different scenarios; 2013 vs. 2010 GDP loss curves with respect to temperature (i.e., similar to Fig. 1a in USG, 2010); regional 2300 extensions; temperature projections to 2100 and 2300; and key differences across models and their implications. Commenter further states it would be valuable to make all the results available for download, that information critical to the results should appear in the TSDs, and that the documentation should be written to facilitate peer review.

The comments regarding the process issues mirror those submitted to the Office of Management and Budget's separate comment solicitation on the SC-CO2 (78 FR 70586; November 26, 2013).  As a member of the interagency working group (IWG) on SC-CO2, EPA has carefully examined and evaluated comments submitted to OMB's separate solicitation.  EPA has also carefully examined and evaluated all comments received regarding SC-CO2 through this rulemaking process and determined that the IWG responses to the comments on the OMB solicitation address the process comments summarized in this section. Specifically, EPA concurs with the IWG's response to these comments and hereby incorporates them by reference.
 After careful evaluation of the full range of comments and associated technical issues described in section 4.4, EPA has determined that it will continue to use the current SC-CO2 estimates until further updates can be made to reflect forthcoming guidance from the Academies.  EPA believes that the current estimates continue to represent the best scientific information on the impacts of climate change available in a form appropriate for incorporating the damages from incremental CO2 emissions changes into regulatory analysis.  Therefore, EPA has presented the current SC-CO2 estimates in the analysis of illustrative benefit-cost scenarios for new sources in RIA Chapter 5.   EPA will continue to consider these comments and will share the recommendations with the IWG as it moves forward with the Academies process.
 See section 4.1 for EPA's detailed response to comments on climate change science and section 4.4-3 EPA's detailed response to comments on the use of a global versus domestic SC-CO2.  See section 4.4-7, for EPA's detailed response to comments about the selection of the discount rate.  See also EPA's detailed response to comments on the IAMs and damage functions in 4.4-1, EPA's response to comments on uncertainty in 4.4-4, and EPA's response to comments regarding the application of the SC-CO2 estimates to this rulemaking in 4.4-8.
 The remainder of this section elaborates on the process comments in the context of this rulemaking.
 Legal/statutory authority for issuing the SC-CO2 estimates
EPA agrees with commenters who believe that federal agencies have legal authority to develop these estimates, and notes that the IWG was cognizant of the Ninth Circuit decision referenced by these commenters when it decided to do so. EPA does not agree that the IWG's issuance of the SC-CO2 estimates constituted an APA rulemaking.  As noted in the OMB Response to Comments on SC-CO2, the IWG did not agree with comments that issuance of the SCC estimates constitutes an APA rule making (page 34). The APA definition of a rule is "an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy." The SCC estimates are not designed to implement, interpret, or prescribe law or policy. Rather they are intended to provide guidance to agencies on a science-based methodology for estimating the benefits of CO2 reductions in regulatory impact analysis.
 EPA notes that OMB has long-established authority to oversee the regulatory review process, including preparation of regulatory impact analyses. OMB's authority in this area is contained in Executive Orders 12866 and 13563, among others, and has been acknowledged by Congress in a series of statutes, including the Small Business Regulatory Enforcement and Fairness Act, the Congressional Review Act, the Information Quality Act, and the Regulatory Right to Know Act. It is fully consistent with this authority for OMB to offer guidance to agencies on best practices for conducting regulatory impact analysis, as it did, for example, in issuing Circular A-4. In the case of the SC-CO2 estimates and underlying TSDs, OMB determined that it was appropriate to exercise this authority through a consensus-based process involving a broad range of agencies that may issue rules affecting CO2 emissions.
 The TSDs explain in detail the factual and policy basis for all of the various methodological choices involved in developing the SC-CO2 estimates. The IAMs are documented in the scientific literature. In addition, EPA has assisted interested members of the public in obtaining additional information on the workings of the models. It has also provided full technical details of its own use of the models, including output of model runs, to interested parties upon request. However, because the SC-CO2 estimates are not a rule, as a legal matter they are not subject to the arbitrary and capricious standard of the APA.
 Consistency with applicable OMB guidance documents, transparency, opportunity for public comment
 EPA agrees with the commenters that concluded the analytic work of the IWG has been transparent and provided clear examples in support of this conclusion.  As discussed below, EPA disagrees with the comments that (1) the process to develop the SC-CO2 was non-transparent and (2) that this process was inconsistent with the Administration's goals for transparency in scientific information.
Furthermore, EPA strongly disagrees with the claim that the Agency has not provided information necessary to understand the SC-CO2 estimates and that it "deprives the IWG, OMB and other executive rulemaking agencies of the benefit of any public input on the critical decisions, inputs, and assumptions that form the basis of the SCC estimates."  First, EPA notes that the estimates and supporting TSDs are developed and issued through a consensus based process involving the entire working group. Second, EPA has assisted individual requestors in obtaining more detailed information about the modeling. For example, one requestor noted publically that the EPA "modelers have been very open, collegial, and helpful." EPA has also responded to numerous letters from members of Congress regarding the SC-CO2 estimates as well as requests under FOIA.
 In particular, EPA believes that the process was inclusive, transparent, and appropriately considered public input. The TSDs fully document the methodology used to develop the estimates and the considerations that led the IWG to adopt this methodology. While the details of the IWG's internal processes were not discussed in the TSDs, this is common for most government (and non-government) documents. Such details were not considered germane to the public's understanding of the SC-CO2 estimates and the methodology used to produce them, but a general overview is provided here.
 In developing the 2010 estimates, the EPA and other members of the IWG met frequently in the year preceding the release of the February 2010 TSD. For the 2013 update, only a few meetings were needed because the group decided to make no changes beyond incorporating the most recent versions of the IAMs. IWG members, in particular professional economic staff with modeling expertise oversaw the primary modeling and calculations for both the 2010 and 2013 SCC estimates using the most recent versions of the three IAMs available at the time. To develop the 2010 estimates, the staff members ran two of the three models and contracted with the developer of the third model to perform those runs. The contractor did not participate in any of the interagency meetings but rather received instructions for how to conduct the model runs (e.g., specification of the three sets of input assumptions as determined by the working group). The staff members ran all three models to develop the 2013 estimates. Decision making for both the 2010 and 2013 processes was by consensus of IWG members. The details of internal discussions are deliberative, but the discussions were generally technical in nature and the issues discussed and conclusions reached are well documented in the TSDs. Regarding the transparency of the underlying models themselves, the IWG notes that they are well documented in the academic literature.
 The Government Accountability Office (GAO) also completed a review of the process used to develop the SCC estimates. In its 2014 report, GAO concluded that according to IWG participants, all major issues discussed were documented in the TSDs, which is consistent with Federal standards for internal control, and the processes and methods used were based on the principles of (1) consensus-based decision-making, (2) reliance on existing academic literature and modeling, and (3) disclosure of limitations and incorporation of new information through consideration of public comments and revision of the estimates as updated research became available.
 Regarding the explanation in the TSD for the 2013 revisions, no changes were made to the input assumptions developed by the IWG between the 2010 and 2013 estimates. The only changes were those made by the model developers themselves to the underlying models, which are documented in the academic literature. To assist the public in understanding these changes, the 2013 TSD provides a brief summary of the most important ones, as well as references to the relevant literature where more detailed information can be found. As with the 2010 TSD, the IWG did not attempt to evaluate the modeling choices made by the modelers. As noted in the OMB Response to Comments, by selecting the three "most widely used impact assessment models" (NAS, 2010), the IWG intended to reflect a reasonable range of modeling choices and approaches that collectively reflect the current literature on the estimation of damages from CO2 emissions. As explained in the 2010 TSD:
       The parameters and assumptions embedded in the three models vary widely. 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...All other model features were left unchanged, relying on the model developers' best estimates and judgments...The sensitivity of the results to other aspects of the models (e.g. the carbon cycle or damage function) is also important to explore in the context of future revisions to the SCC but has not been incorporated into these estimates.
Accordingly, the IWG did not attempt to explain in detail how the damage functions in the models were constructed or their strengths and weaknesses, either for the earlier model versions used in the 2010 estimates or for the updated versions used for the 2013 estimates. Rather, stakeholders who are interested in these details are encouraged to consult the model documentation and the related academic literature referenced in the TSDs, as well as the model developers themselves. As noted in the OMB Response to Comments on SC-CO2, the IWG accepts the point that clearer citations to specific model versions and revisions would be helpful and will attempt to address this in the next update of the TSD.
Regarding opportunities for public comment, EPA notes that such opportunities have been provided on all aspects of the SCC estimates in the interim estimates (2009) selected by the IWG and in the numerous proposed rules, including the proposal for this rulemaking, issued by EPA since February 2010 that made use of the estimates. As a general practice, EPA requests comments on all aspects of the regulatory impact analysis, thereby providing ample opportunity for the public to comment on SC-CO2 estimates used in these analyses. These comments helped inform the development of the 2013 revised estimates. In addition, OMB provided a stand-alone comment period on the 2013 estimates.
Regarding the adequacy of the information provided to the public as a basis for comment, the TSDs provide a complete record of the methodology and assumptions used to develop the SCC estimates, including references to the academic literature. As previously noted, independent analysts have sought and received information from EPA allowing them to implement the IWG's SC-CO2 approach and modify it further if they choose. Additional documentation is available in the academic literature on the IAMs themselves.
With regard to peer review, the assumptions and models employed in generating the SC-CO2 estimates are all drawn from the peer-reviewed academic literature. According to the OMB Final Information Quality Bulletin for Peer Review and guidelines in the EPA's Peer Review Handbook, if the Agency has determined that information has already been subject to adequate peer review, then it is not necessary to have further peer review of that information. See Part II.2 of OMB's Final Information Quality Bulletin for Peer Review, and EPA's Peer Review Handbook (3[rd] ed.) pages B-15 and B-26.  To further strengthen the robustness of the SCC estimate, EPA and the other members of the IWG plan to seek external expert advice on technical opportunities to improve the SCC estimates in future updates, including many of the approaches suggested by commenters and peer-reviewed literature, and summarized in this document.
 Regarding comments that the estimates not be used until a future update that corrects the commenters' perceived flaws is completed, EPA does not feel that it is appropriate to withdraw the current estimates.  As previously noted, EPA has carefully examined and evaluated the full range of comments and associated technical issues described in section 8.7.2, and determined that it will continue to use the current SC-CO2 estimates until further updates can be made to reflect forthcoming guidance from the Academies.  EPA believes that the current estimates continue to represent the best scientific information on the impacts of climate change available in a form appropriate for incorporating the damages from incremental CO2 emissions changes into regulatory analysis.  EPA will continue to consider these comments and will share the recommendations with the IWG as it moves forward with the Academies process.
 EPA disagrees that the TSDs and SC-CO2 estimates are inconsistent with OMB and EPA guidance, including OMB Circular A-4 and guidelines under the Information Quality Act. To ensure that the SC-CO2 methodology is transparent, the TSDs are comprehensive and technically rigorous in explaining the sources of data, the assumptions employed, the analytic methods applied, and the statistical assumptions employed. To ensure that the results are reproducible, EPA and other IWG members have provided technical assistance and modeling results to external stakeholders upon request.
 Circular A-4 is a living document, which may be updated as appropriate to reflect new developments and unforeseen issues. OMB was fully involved in the development of the SC-CO2 estimates as a working group co-chair and supports the recommendations regarding the discount rate and the focus on global damages. The departure from the standard discount rate recommendations in Circular A-4 is explained in detail in the TSDs and in Section 8.7.2, comment 7, of this document. Briefly, the use of 7 percent is not considered appropriate for intergenerational discounting. There is wide support for this view in the academic literature, and it is recognized in Circular A-4 itself. The emphasis on global rather than domestic damages is also explained in detail in the TSDs. Beyond the fact that good methodologies for estimating domestic damages do not currently exist, basing decisions on only the domestic damages from carbon emissions will lead to an inefficient allocation of resources to reducing them, especially if all countries adopt a similarly short-sighted approach. An efficient outcome can only be achieved if all countries consider the full costs and benefits of their actions; the United States continues to be a leader in working to establish such a regime internationally.
 In addition, consistent EPA-wide implementation of its peer review and information quality act guidelines has been an agency priority for many years.  The most recent document describing this EPA guidance, Guidance for Evaluating and Documenting the Quality of Existing Scientific and Technical Information, was issued in December 2012 as an addendum to a 2003 EPA guidance document entitled, A Summary of General Assessment Factors for Evaluating the Quality of Scientific and Technical Information. The December 2012 addendum does not create new standards for assessing and accepting data from other organizations  -  the Agency's existing information quality guidance continues to be applied to previous and future actions. Rather, the December 2012 addendum references EPA's comprehensive existing information quality guidance and creates a consistent Agency-wide approach for reviewing and documenting the use of existing scientific and technical information from other organizations.
 The 2010 TSD for the SC-CO2 estimates provides documentation of the interagency decisions and the 2013 TSD documents the technical update. Consistent with EPA's 2003 data quality guidance document and the December 2012 addendum referenced above, the 2010 and 2013 TSDs for the SC-CO2 estimates describe the type and quality of information used to estimate the social cost of carbon as well as the sources for the information used (documentation of modeling inputs -- e.g., climate sensitivity and socioeconomic scenarios -- in the peer reviewed literature). The 2010 and 2013 TSDs also provide exhaustive documentation of how the USG's review identified, evaluated, and adopted the data, assumptions, and analytical framework used to develop the SCC estimates.  Furthermore, the IAMs used to develop the USG SCC estimates are documented within the peer reviewed literature and source code is available on the model developers' websites or upon request from the relevant developer.
Finally, commenters significantly misstate the law regarding both the rights afforded under the Data Quality Act and the nature of guidance implementing it.  First, Prime Time Int'l Inc. v. Vilsack, 599 F.3d 678, 685 (D.C. Cir. 2010) does not stand for the proposition that IQA claims are judicially reviewable, contrary to commenters' assertions.  The case makes no such statement, and the D.C. Circuit has indicated otherwise by its citation, in State of Mississippi, of Salt Institute's holding that such claims are not reviewable (see text above).  See also Mississippi Comm'n on Environmental Quality v. EPA, No. 12-1309 at n. 29, 2015 WL 3461262,  (D.C. Cir. June 2, 2015) noting that Prime Time dismissed an IQA challenge "without addressing argument that the statute creates no legal rights in third parties", and, as quoted above, stated that "almost every court that has addressed an Information Quality Act challenge has held that the statute `creates no legal rights in any third parties'"(quoting Salt Institute)).  The commenter also fails to acknowledge all of the other cases uniformly rejecting this claim, and indeed, fails to acknowledge the text of the IQA itself.  See Styrene Info. & Research Ctr., Inc. v. Sebelius, 944 F. Supp. 2d 71, at 82 (D.D.C. 2013) (concluding "that the IQA and OMB guidelines do not provide judicially manageable standards); Harkonen v. U.S. Dept. of Justice, 2012 U.S. Dist. LEXIS 171415, at **30 - 36 (N.D. Cal. 2012) (dismissing argument that D.C. Circuit reached the merits of an IQA claim in Prime Time); Family Farm Alliance v. Salazar, 749 F. Supp. 2d 1083, 1096 - 1100 (E.D. Cal. 2010) (rejecting argument that D.C. Circuit in Prime Time found an implicit right of action under the IQA).

The commenter also reads Prime Time as holding that the OMB Guidelines are binding legislative rules.  Guidelines are just that: they provide assistance and are not binding.  Describing these OMB Guidelines, the D.C. Circuit noted that the Guidelines provide "`policy and procedural guidance'", are meant to be "flexible" and are to be implemented differently by different agencies accounting for circumstances.  State of Mississippi, 744 F.3d at 1347; see Styrene Info. & Research Ctr, Inc., 944 F. Supp. 2d at 82.  State of Mississippi antedates Prime Time.  EPA consequently believes that the OMB Guidelines are not binding legislative rules.

   Nor are EPA's Peer Review guidelines binding legislative rules.  EPA first issued its Peer Review Policy in 1993, and in 1998 issued its Peer Review Handbook to provide non-binding guidance for implementation of the Peer Review Policy. In 2004, OMB issued its Final Information Quality Bulletin for Peer Review (OMB Bulletin) to provide government-wide guidance to enhance the practice of peer review. EPA subsequently updated its Peer Review Policy and Peer Review Handbook to incorporate the provisions of the OMB Bulletin. EPA's IQGs, Peer Review Policy, and Peer Review Handbook do not bind the Agency, but instead guide EPA's exercise of discretion when making decisions about information quality and peer review. API v. EPA, 684 F. 3d 1342, 1348 (D.C. Cir. 2012) (chastising industry petitioners for characterizing the EPA peer review guidance as binding ("perhaps the API should have had its brief peer-reviewed"); State of Mississippi v. EPA, 744 F.3d at 1347 (D.C. Cir. 2013).  The suggestion in the comments that EPA's Inspector General has decreed that the Peer Review guidance is binding both mischaracterizes the IG's statements and that Office's function.  It does not determine the legal status of agency documents, much less countermand the holding of the D.C. Circuit just cited.

Regarding the comment that the IAMs are not available via EPA's website, EPA notes that the CREM is no longer an active body at EPA. In addition to obtaining information via the peer-reviewed literature and the SC-CO2 TSDs, the public can instead find information about the models in EPA's Science Inventory database: DICE, FUND, and PAGE)

Regarding comments on SC-CO2 and BSER: The SC-CO2 was not used, as one commenter stated, as a screen to justify the BSER.  RIA chapters 3 and 5 present the SC-CO2 and the application of these estimates to consider the illustrative benefit and cost scenarios.  Please see Section V.A of the preamble for discussion about the factors used to determine the Best System of Emission Reduction (BSER).
Carbon dioxide fertilization
Comment 4.4-6: Commenter 9685 states the benefits of CO2 fertilization and improved crop resilience are significant and must be reflected in any cost-benefit analysis.  Commenter includes excerpt from attached documents to support point.

Commenters disagreed about whether the integrated assessment models overestimate or underestimate CO2 fertilization effects in the agriculture and forestry sectors. For example, commenter 9685 states the benefits of CO2 fertilization and improved crop resilience are significant and must be reflected in any cost-benefit analysis and referenced Idso (2013). However, commenter 9861 stated that "the models do not reflect recent research on agricultural changes, which suggests that CO2 fertilization is overestimated, particularly in the FUND model, and that much, if not all, of the fertilization benefits may be cancelled out by negative impacts on agriculture." Commenter 9681 states the current inclusion of CO2 fertilization benefits likely overstates its effects. The models do not reflect recent research on agricultural changes, which suggest the CO2 fertilization is overestimated, particularly in the FUND model, and that much, if not all, of the fertilization benefits may be cancelled out by negative impacts on agriculture (e.g., extreme heat, pests, and weeds). If the agency is not able to adequately model all agricultural impacts it should, at a minimum, remove CO2 fertilization benefits.

Response 4.4-6: The comments regarding CO2 fertilization effects in the agriculture and forestry sectors and "greening effect" issues mirror those submitted to the Office of Management and Budget's separate comment solicitation on the SC-CO2 (78 FR 70586; November 26, 2013).  As a member of the interagency working group (IWG) on SC-CO2, EPA has carefully examined and evaluated comments submitted to OMB's separate solicitation.  EPA has also carefully examined and evaluated all comments received regarding SC-CO2 through this rulemaking process and determined that the IWG responses to the comments on the OMB solicitation address the CO2 fertilization effects in the agriculture and forestry sectors and "greening effect" issues summarized in this section. Specifically, EPA concurs with the IWG's response to these comments and hereby incorporates them by reference.
After careful evaluation of the full range of comments and associated technical issues described in section 8.7.2, EPA has determined that it will continue to use the current SC-CO2 estimates until further updates can be made to reflect forthcoming guidance from the Academies.  EPA believes that the current estimates continue to represent the best scientific information on the impacts of climate change available in a form appropriate for incorporating the damages from incremental CO2 emissions changes into regulatory analysis.  Therefore, EPA has presented the current SC-CO2 estimates in the analyses of illustrative costs and benefits in the RIA.  EPA will continue to consider these comments and will share the recommendations with the IWG as it moves forward with the Academies process.
The remainder of this section elaborates on the comments in the context of this rulemaking.
As noted in the OMB Response to Comments on SC-CO2, to date, the IWG has accepted the models as currently constituted, and omitted any damages or beneficial effects that the model developers themselves do not include. The IWG recognizes that none of the three IAMs fully incorporates all climate change impacts, either positive or negative. Some of the effects referenced by commenters (e.g., "catastrophic" effects, disease, and CO2 fertilization) are explicitly modeled in the damage functions of one or more of the current models (although the treatment may not be complete), and the model developers continue to update their models as new research becomes available. In fact, the IWG undertook the 2013 revision because of updates to the models, which include new or enhanced representation of certain impacts, such as sea level rise damages. In addition, some of the categories mentioned by commenters are currently speculative or cannot be incorporated into the damage function for lack of appropriate data. Using an ensemble of three different models was intended to, at least partially, address the fact that no single model includes all of the impacts. We recognize that there may be effects that none of the three selected models addresses (e.g., impacts from ocean acidification) or that are likely not fully captured (e.g. catastrophic effects).
EPA also recognizes that the impacts of climate change on agriculture is an area of active research and that methodological and data challenges persist. As a result there is uncertainty as to the magnitude of these impacts and the role of interactions between changes in the climate and other factors, such as CO2 fertilization, temperature, precipitation, ozone, pests, etc. Additionally, these effects are likely to vary widely across regions and crops. However, with high confidence the IPCC (2013) stated in its Fifth Assessment Report (AR5) that "[b]ased on many studies covering a wide range of regions and crops, negative impacts of climate change on crop yields have been more common than positive impacts." As noted above, the IWG's approach to date has been to rely on the damage functions included in the three IAMs by their developers.
EPA agrees that it is important to update the SC-CO2 periodically to incorporate improvements in the understanding of greenhouse gas emissions impacts and will continue to follow and evaluate the latest science on impact categories that are omitted or not fully addressed in the IAMs. Also, EPA and the other members of the IWG will seek external expert advice on the technical merits and challenges of potential approaches to update the damage functions in future revisions to the SC-CO2 estimates.
See also 4.1-9, for EPA's response to comments about carbon fertilization, including EPA's general treatment of the impact of increased CO2 on plant growth and about treatment of CO2 fertilization in models.
Discount rate

Commenter 8925 states constant discount rates are inconsistent with the economic growth models being used for this analysis and that discounting should be dynamic and a function of the consumption growth rate.
Commenter 10091 states regarding discount rates that the IWG ignores OMB guidelines in its selection of discount rates to use in calculating the SCC. OMB Circular A-4 refers to OMB Circular A-94 which states that "a real discount rate of 7 percent should be used as a base-case for regulatory analysis" and to show the sensitivity of the results to the discount rate assumptions "[f]or regulatory analysis, you should provide estimates of net benefits using both 3 percent and 7 percent." Instead, the IWG opted to determine the SCC using discount rates of 2.5, 3, and 5 percent, and did not include results for a 7 percent rate. This has ramifications throughout the federal regulatory agencies. For example, in previous Environmental Protection Agency discussions of a proposed new rule regulating discharges from steam electric power plants (and how the rule may impact emissions from the plants), the EPA included a Table of the annualized benefits of the emissions reductions from NOx, SO2, and CO2. Following OMB guidelines on how to calculate costs and benefits-the EPA reports its findings using both a 3% and a 7% discount rate. Yet as explained in a footnote to the Table (see below), the CO2 benefits are calculated using the 3% and the 5% discount rate "because SCC calculations are not available for the 7 percent discount rate." The reason they are "not available" is that the IWG ignored the OMB guidelines and did not provide the SCC at a 7 percent discount rate for use in regulator analyses.  Regulatory agencies, like the EPA, have in the past, tried to follow the rules and calculate cost and benefits using both the 3 percent and 7 percent discount rates. Yet, when they express the benefits of reducing carbon dioxide emissions at the recommended 7 percent rate, they are actually going to use a number that is incorrect and inaccurate, and explain in a footnote why they are doing so. This is an unacceptable excuse, and is yet another example of why the IWG's determination of the SCC is inappropriate for use in federal regulatory analyses. Commenter states that in this proposed Rule, the EPA does not investigate the results of using a 7% discount rate on the comparison of new coal-fired power plants with and without CCS technology in direct violation of OMB guidelines.

Commenter 9396 states that in violation of the Information Quality Act October 2002 OMB Bulletin, the IWG failed to run discount analysis using OMB guidelines, instead choosing to inflate estimated benefits by using a lower discount rate for calculations. The IWG has the flexibility to run modeling at whatever rate it chooses so long as the models include both 3% and 7%. The failure to run a 7% analysis has the consequence of skewing the average SCC to a higher level than if OMB policy was followed.
Commenter 9681 provides recommendations on further refinements to the SCC. Industry groups have argued that the IWG analysis is flawed in its use of consumption discount rates, consideration of scientific uncertainty, and in counting both domestic and global damages caused by our emissions. None of these criticisms have merit. Indeed, the IWG process uses assumptions that accord with economic and scientific theory. Economic models, and the scientific analyses they draw from, are of course improving continuously. Future updates to the SCC should build on these and go further. As further refinements better account for climate change impacts not yet incorporated into the modeling, all indications are that the estimated benefits of curbing carbon pollution will rise substantially over current estimates.
Commenter 9681 continues the IWG appropriately used consumption discount rates rather than returns on capital. With respect to the discount rate, the IWG conducted sensitivity analysis of the results to three constant consumption discount rates: 2.5%, 3%, and 5%; for each of the discount rates, the TSDs reported the various moments and percentiles64 (The moments of a distribution (of SCC estimates in this case) are, loosely speaking, the various values that describe the distribution's shape: what value is the distribution centered around (mean); how wide is the distribution (the variance); whether the distribution is lopsided (skewness); and whether it is tall and skinny or short and fat (kurtosis). A percentile is a statistical measure of the value (the SCC value in this case) below which a specified percentage of (SCC) observations falls. The 1st percentile indicates the SCC value above which (the other) 99% of observed SCC values fall. The 99th percentile indicates the SCC value below which 99% of all observed SCC values fall. ) of the SCC estimates. The discount rate is one of the most important inputs in models of climate damages, with plausible assumptions easily leading to differences of an order of magnitude in the SCC. The climate impacts of present emissions will unfold over hundreds of years. When used over very long periods of time, discounting penalizes future generations heavily due to compounding effects. For example, at a rate of 1%, $1 million 300 years hence equals over $50,000 today; at 5% it equals less than 50 cents. The discount rate changed by a factor of five, whereas the discounted value changed by more than five orders of magnitude. Depending on the link between climate risk and economic growth risk, even a rate of 1% may be too high.  Uncertainty around the correct discount rate pushes the rate lower still. The IWG correctly excluded a 7% discount rate, a typical private sector rate of return on capital, for several reasons. First, typical financial decisions, such as how much to save in a bank account or invest in stocks, focus on private decisions and utilize private rates of return. Private market participants typically have short time horizons. However, here we are concerned with social discount rates because emissions mitigation is a public good, where individual emissions choices affect public well-being broadly. Rather than evaluating an optimal outcome from the narrow perspective of investors alone, economic theory would require that we make the optimal choices based on societal preferences (and discount rates). Second, climate change is expected to affect primarily consumption, not traditional capital investments. OMB guidelines note that in this circumstance, consumption discount rates are appropriate. Third, 7% is considered much too high for reasons of discount rate uncertainty and intergenerational concerns (further discussed below).
Commenter 9681 also states that the IWG correctly adopted as one of its discount rates a value reflecting long-term interest rate uncertainty, and-as a primary extension to current results should go further by directly implementing a declining discount rate.  The IWG was correct in choosing as one of its discount rates an estimate based upon declining discount rates (2.5%). Since the IWG undertook its initial analysis, a consensus has emerged among leading climate economists that a declining discount rate should be used for climate damages to reflect long-term uncertainty in interest rates. Arrow et al (2013) presents several arguments that strongly support the use of declining discount rates for long-term benefit-cost analysis. Perhaps the best reason is the simple fact that there is considerable uncertainty around which interest rate to use: uncertainty in the rate points directly to the need to use a declining rate, as the impact of the uncertainty grows exponentially over time. The uncertainty about future discount rates could stem from a number of reasons particularly salient to climate damages, including uncertainties in future economic growth, consumption, and the interest rate reaped by investments. A possible declining interest rate schedule for consideration by the IWG is the one proposed by Weitzman (2001). It is derived from a broad survey of top economists and the profession at large in a climate change context and explicitly incorporates arguments around interest rate uncertainty. Cropper et al (forthcoming) similarly argues for a declining interest rate schedule and lays out the fundamental logic. Moreover, the United States would not be alone in using a declining discount rate. It is standard practice for the United Kingdom and French governments, among others. The U.K. declining discount rate schedule that subtracts out a time preference value. France's schedule is roughly similar to the United Kingdom's. Importantly, all of these discount rate schedules yield lower present values than the constant 2.5% Newell-Pizer rate, suggesting that even the lowest discount rate evaluated by the IWG is too high. The consensus of leading economists is that a declining discount rate schedule should be used, consistent with the approach of other countries like the United Kingdom. Adopting such a schedule would increase the SCC substantially from the administration's central estimate, suggesting that even the high end of the range presented by the administration is likely too low.
Commenters 9194, 7977 states the IWG/OMB process is flawed in that it fails to calculate the SCC using OMB's prescribed "base case" discount rate of 7% and impermissibly calculates global benefits instead of domestic benefits.
Commenter 9423 states a key variable in estimating the SCC is the discount rate. OMB Circular A-94 states that a discount rate of 7 percent should be used as a base case for regulatory analysis as a default position while acknowledging that in some cases, other discount rates may be appropriate. OMB Circular A-4 states that "For regulatory analysis, one should provide estimates of net benefits using both 3 percent and 7 percent." The impact of the use of different discount rates can be significant. In the revised Technical Support Document, the social cost of carbon for 2050 is $97/metric ton of C02 using a 2.5 percent discount factor while it is $26/metric ton of C02 using a 5 percent discount factor. EPA should include an analysis using a discount rate of 7 percent, as suggested by OMB.
Response 4.4-7: The comments regarding discount rates applied to the SC-CO2 estimates mirror those submitted to the Office of Management and Budget's separate comment solicitation on the SCC (78 FR 70586; November 26, 2013).  As a member of the interagency working group (IWG) on SC-CO2, EPA has carefully examined and evaluated comments submitted to OMB's separate solicitation.  EPA has also carefully examined and evaluated all comments received regarding SC-CO2 through this rulemaking process and determined that the IWG responses to the comments on the OMB solicitation address the comments on the discount rates applied to the SC-CO2 estimates.  Specifically, EPA concurs with the IWG's response to these comments and hereby incorporates them by reference. The remainder of this section elaborates on these comments in the context of this rulemaking.

EPA and other members of the IWG have reconfirmed their commitment to periodic review and update of the methodology and estimates to ensure that they continue to reflect the best available science and economics. Furthermore, EPA has determined that the SC-CO2 methodological recommendations require additional research, review, and public comment before it can apply them to a rulemaking context.

To help synthesize the technical information and input reflected in the comments, and to add additional rigor to the next update of the SC-CO2, the EPA and all of the other IWG members plan to seek independent expert advice on technical opportunities to improve the SC-CO2 estimates, including the approaches suggested by commenters and summarized in this document. Specifically, EPA and all of the other IWG members plan to ask the National Academies of Sciences, Engineering, and Medicine (Academies) to examine the technical merits and challenges of potential approaches to improving the SC-CO2 estimates in future updates. Input from the Academies, informed by the comments submitted to this rulemaking and the peer-reviewed literature, will help to ensure that the SC-CO2 estimates used by EPA continue to reflect the best available science and methodologies.

After careful evaluation of the full range of comments and associated technical issues described in section 4.4, EPA has determined that it will continue to use the current SC-CO2 estimates until further updates can be made to reflect forthcoming guidance from the Academies.  EPA believes that the current estimates continue to represent the best scientific information on the impacts of climate change available in a form appropriate for incorporating the damages from incremental CO2 emissions changes into regulatory analysis.  Therefore, EPA has presented the current SC-CO2 estimates in the analysis of illustrative benefit-cost scenarios for new sources in RIA Chapter 5.   EPA will continue to consider these comments and will share the recommendations with the IWG as it moves forward with the Academies process.

The remainder of this section provides more detailed responses to the comments and recommendations.

OMB guidance in Circular A-4 recommends that discount rates of 3 percent and 7 percent be used in regulatory impact analysis. The 7 percent rate is an estimate of the average before-tax real rate of return to private capital in the U.S. economy. It is a broad measure that reflects the returns to real estate and small business and corporate capital and is meant to approximate the opportunity cost of capital in the United States. The 3 percent rate is an estimate of the real rate at which consumers discount future consumption flows to their present value, often referred to as the social rate of time preference or the consumption rate of interest. As stated in the 2010 TSD, in a market with no distortions, the return to savings would equal the private return on investment, and the market rate of interest would be the appropriate choice for the social discount rate. In the real world, however, risk, taxes, and other market imperfections drive a wedge between the risk-free rate of return on capital and the consumption rate of interest.

While most regulatory impact analysis is conducted over a time frame in the range of 20 to 50 years, OMB guidance in Circular A-4 recognizes that special ethical considerations arise when comparing benefits and costs across generations. Although most people demonstrate time preference in their own consumption behavior, it may not be appropriate for society to demonstrate a similar preference when deciding between the well-being of current and future generations. Future citizens who are affected by such choices cannot take part in making them, and today's society must act with some consideration of their interest. Even in an intergenerational context, however, it would still be correct to discount future costs and benefits generally (though perhaps at a lower rate than for intragenerational analysis), due to the expectation that future generations will be wealthier and thus will value a marginal dollar of benefits or costs less than the current generation. Therefore, it is appropriate to discount future benefits and costs relative to current benefits and costs, even if the welfare of future generations is not being discounted. Estimates of the discount rate appropriate in this case, from the 1990s, ranged from 1 to 3 percent. After reviewing those considerations, Circular A-4 states that if a rule will have important intergenerational benefits or costs, agencies should consider a further sensitivity analysis using a lower but positive discount rate in addition to calculating net benefits using discount rates of 3 and 7 percent.

EPA and the other members of the IWG examined the economics literature and concluded that the consumption rate of interest is the correct concept to use in evaluating the net social costs of a marginal change in CO2 emissions, as the impacts of climate change are measured in consumption-equivalent units in the three IAMs used to estimate the SC-CO2. This is consistent with OMB's guidance in Circular A-4, which states that when a regulation is expected to primarily affect private consumption -- for instance, via higher prices for goods and services--it is appropriate to use the consumption rate of interest to reflect how private individuals trade-off current and future consumption.

As explained in the 2010 TSD, after a thorough review of the discounting literature, the IWG chose to use three discount rates to span a plausible range of constant discount rates: 2.5, 3, and 5 percent per year. The central value, 3 percent, is consistent with estimates provided in the economics literature and OMB's Circular A-4 guidance for the consumption rate of interest. The upper value of 5 percent represents the possibility that climate damages are positively correlated with market returns, which would suggest a rate higher than the risk-free rate of 3 percent. Additionally, this discount rate may be justified by the high interest rates that many consumers use to smooth consumption across periods. The low value, 2.5 percent, is included to incorporate the concern that interest rates are highly uncertain over time. It represents the average rate after adjusting for uncertainty using a mean-reverting and random walk approach as described in Newell and Pizer (2003), starting at a discount rate of 3 percent. Further, a rate below the riskless rate would be justified if climate investments are negatively correlated with the overall market rate of return. Use of this lower value also responds to the ethical concerns discussed above regarding intergenerational discounting.

EPA recognizes that disagreement remains in the academic literature over the appropriate discount rate to use for regulatory analysis of actions with significant intergenerational impacts, such as CO2 emissions changes that affect the global climate on long time scales. EPA and the other members of the IWG will continue to follow and evaluate the latest science on intergenerational discounting and seek external expert advice on issues related to discounting in the context of climate change.

Regarding recommendations for lower discount rates or a declining rate: As noted above, the EPA and the other members of the IWG selected a range of discount rates from 2.5 to 5 percent; a review of the literature and the reasoning that led to the selection of this range are discussed in detail in the 2010 TSD. Several of the issues raised by commenters were explicitly considered and were part of the rationale for the selected range.

The 2010 TSD discusses both descriptive and prescriptive approaches to selecting discount rates. A descriptive approach reflects a positive (non-normative) perspective based on observations of people's actual choices (e.g., savings versus consumption and allocation of savings over more and less risky investments). The prescriptive approach adds a normative component and incorporates judgments that decision makers believe should be reflected in the policy choices that the discount rate is intended to inform. For example, some have argued on ethical grounds that in the Ramsey formula -- which dissects market rates into three components, the pure rate of time preference (ρ), growth rate of per-capita consumption (g), and coefficient of relative risk aversion (η) -- the ρ component should be set to zero so that the welfare of all generations is valued equally. After considering a range of plausible values from the literature for g and η, the IWG concluded that setting a very low ρ (e.g., 0.1 percent per year) could yield rates in the range of 1.4 to 3.1 percent.

The 2010 TSD also discussed uncertainty and its effects on discount rates. The certainty equivalent values of the future benefits of reducing current CO2 emissions will be lower than the expected value if the benefits and future consumption are positively correlated, assuming people are risk averse on average. This in turn implies that when discounting expected future benefits a discount rate that accounts for uncertainty should exceed a riskless rate. As explained in the TSD, this consideration was part of the logic for setting the upper end of the selected range at 5 percent.

EPA and other members of the IWG also considered the issue of "climate catastrophes." To the extent that such outcomes may not be adequately represented in the IAMs, the central tendency estimates from these models may not capture the full range of potential damages from CO2 emissions. For this reason, in addition to the three mean SC-CO2 estimates using discount rates of 2.5, 3 and 5 percent, EPA and other members of the IWG recommended including a rate based on the 95th percentile damage estimate (with a 3 percent discount rate) for the upper end of the range of plausible SC-CO2 estimates.

With respect to declining discount rates, EPA and other members of the IWG agrees that this is an important area of emerging research. However, no widely-accepted declining discount rate schedule has yet been developed. Some key technical issues warrant careful consideration before adopting a declining discount rate schedule, such as determining how to update the discount rate schedule as uncertainty is resolved over time and ensuring that the use of declining discount rates does not lead to the possibility of time-inconsistent choices. A recent workshop sponsored by the federal government resulted in a paper in Science authored by thirteen prominent economists who concluded that a declining discount rate would be appropriate to analyze impacts that occur far into the future (Arrow et al., 2014). However, additional research and analysis is still needed to develop a methodology for implementing a declining discount rate and to understand the implications of applying these theoretical lessons in practice. The EPA and other members of the IWG will continue to follow and evaluate the latest science on the use of declining discount rates in intergenerational contexts and seek external expert advice on issues related to discounting in the context of climate change.

Finally, regarding the comment about the consistency of discount rates applied to the climate benefits versus other monetized impacts: while EPA continues to find the discount rates applied to the SC-CO2 estimates to be appropriate, it recognizes that different discount rates are applied to other impacts.  The workshop mentioned in the preceding paragraph discussed how to apply discounting in a regulation where some costs and benefits accrue intra-generationally while others accrue inter-generationally.  The experts noted that one solution to this problem is to apply a declining discount rate schedule to all regulations.   As previously noted, additional research and analysis is needed to develop a methodology for implementing a declining discount rate.  The EPA and other members of the IWG will continue to follow and evaluate the latest science on the use of declining discount rates in intergenerational contexts and seek external expert advice on issues related to discounting in the context of climate change.
Application and aggregation
Comment 4.4-8: Commenter 9666 states EPA should update its modeling to include the most recent SC-CO2 estimates, noting that EPA has not updated its modeling since the rule was first proposed in 2012 and that OMB's current SCC estimates were updated twice in 2013.  Commenter 9666 states EPA should refrain from utilizing SCC values until OMB has finalized its rule on the use of SCC among federal agencies.
Commenter 9423 states EPA should not use the Office of Management and Budget's (OMB) Revised Social Cost of Carbon Estimates in the Cost/Benefit Analysis. In Section 5.7 of the RIA, EPA uses the OMB's revised estimates for the Social Cost of Carbon (SCC) in estimating the cost and benefits of the subject regulatory proposal for new electric generating units. The TCEQ provided comments to 0MB regarding their Technical Support Document: Technical Update of the Social Cost of Carbon (SCC) for Regulatory Impact Analysis under Executive 0rder No. 12866 published in the Federal Register on November 26, 2013. Given that OMB has requested comments on the SCC estimates, TCEQ, PUC, and RRC believe it is inappropriate for EPA to use the revised estimates in the 111(b) rulemaking as it deprives stakeholders the opportunity to comment on the final version of the OMB guidance. Notwithstanding TCEQ's objection to the use of the OMB guidance in the 111(b) rulemaking, TCEQ, PUC, and RRC offer the following further comments on EPA's use of the SCC estimates in the RIA. The assumptions, both scientific and economic, of the Interagency Working Group that developed the initial SCC estimates are largely unknown and were not subject to independent peer review as called for by the Information Quality Act and 0MB's own internal guidelines. The TCEQ, PUC, and RRC strongly recommend that the SCC estimates not be used in the 111(b) rulemaking until the entire process and data used in developing the SCC estimates are subjected to thorough, independent, external peer review. The models used to derive SCC estimates suffer from considerable uncertainty and speculation in critical inputs including the amount of future carbon emissions, the impact of those emissions on the climate, and the monetization of those impacts. The uncertainty associated with temperature increases is just one example. The models used by the United Nations Intergovernmental Panel on Climate Change (IPCC) have not predicted the current stoppage of global warming, as evidenced by global temperature measurements, over the last 15 years. To the extent that IPCC model data was used in developing the SCC estimates, their use for the short term is clearly circumspect and extrapolation of temperature increases and its impacts over a longer modeling time horizon is of even greater uncertainty.
Commenter 10618 states EPA uses the Social Cost of Carbon (SCC) to characterize potential carbon benefits associated with the rule, with even though it is widely acknowledged that these cost estimates are inaccurate, uncertain, and highly speculative. EPA acknowledges in the RIA that "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." As such, these calculations cannot form the basis of an adequate RIA. AEP has submitted comments on the SCC in its development and use and they are attached as Appendix F to this document.
Commenter 9194 questions the appropriateness of using the IWG estimates of the SCC for regulatory purposes whether for justifying BSER for CO2 for coal plants under this rulemaking or in any other EGU rulemaking that will serve as a predicate for economy-wide CO2 regulations in the future.
Commenter 9194 continues that EPA should not use the social cost of carbon (SCC) in this or any other rulemaking affecting electric generating units until the IWG process headed by the OMB has been subjected to public notice and comment and until the models, all assumptions used in the models, all underlying data used and all analyses used by OMB and the IWG have undergone peer review and public notice and comment.
Commenter 10091 states the social cost of carbon as determined by the Interagency Working Group in their May 2013 Technical Support Document (updated in November 2013) and used by the EPA in this proposed Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units is unsupported by the scientific literature, not in accordance with OMB guidelines, fraught with uncertainty, illogical and thus completely unsuitable and inappropriate for federal rulemaking. As such, use of the SCC in cost/benefit analyses in this proposed rulemaking should be suspended.
Commenter 9396 states the use of the IWG SCC Can Produce Irrational Energy Choices: The SCC as produced by the IAMs could also produce some irrational conclusions in selecting the most cost-effective sources for electric energy production. As seen in the table below, by using SCC values that could be developed well within the input assumptions of the IAM developers, it is possible to select base load generating choices that many in the industry would consider absurd. The values developed in the table above assume that lower carbon energy will replace existing coal-fired generation. By using the IWG central value SCC, all generating alternatives are more cost-effective than coal-fired generation with wind energy and biomass being more cost-effective than an NGCC unit. By using the SCC high value, which is lower than one of the PAGE model developer recommends, wind, biomass and solar photovoltaic energy are cheaper than an NGCC base load unit. Based on the SCC, one could easily conclude that it would be very economical to shut-down all fossil fuel electric generation and replace it with zero carbon generating sources. This conclusion would be considered absurd by most experts in the electric utility industry; especially since base load solar and wind powered generating plants are not yet commercially available.
Commenter 9401 states EPA has not performed an analysis of carbon leakage which will occur as a result of the rule, thus overstating the benefits. Because manufacturing uses 25 percent of all U.S. electricity, we are significantly impacted by electricity prices. Figure 1 illustrates that coal consistently provides the lowest cost energy to generate electricity. The rule would stop the use of coal for use in new power generating units and deprive manufacturing from the lowest cost power generation, thereby impacting competitiveness. It is important to note, that having coal as a major component of electricity fuel diversity provides for increased reliability. Higher electricity costs and reduced reliability will shift EITE industries to other countries along with their jobs and GHG emissions, and accomplish nothing. The EPA must perform an analysis of carbon leakage that will occur as a result of the rule. Not having done so, the EPA has overstated the projected benefits of emission reductions and not accounted for the associated loss of economic activity and jobs moving outside the U.S. Without including the GHG leakage, any benefits are arbitrary and capricious. And, since most countries have higher power generation GHG rates, it would result in a net increase in global GHG emissions.
Commenter 9396 Averaging Model Results: The IWG provides an estimated benefit that fails to capture model uncertainty. For example, a $43/ton average benefit in 2020 is ascribed to model outcomes that range from $-22/ton (i.e. $22 in societal cost) to $727 in benefits. The variability associated with model run outcomes is sufficiently significant that an informed analytical evaluation would conclude that determining a single number for the purpose of developing regulations is unwarranted and imprudent.
 Commenter 9681 states EPA should continue to use the current IWG estimate of the SCC. The current SCC estimates are biased downwards: more can and should be done to improve the SCC and to ensure, through regular updates, that it reflects the latest science and economics. But the necessary process of improving the ability of the SCC to fully reflect the costs of climate impacts to society cannot hold up agency rulemaking efforts. The SCC provides an important, if conservative, estimate of the costs of climate change and the benefits of reducing carbon pollution. To ignore these costs would be detrimental to the health and well-being of Americans and contrary to law and Presidential directives to agencies to evaluate the cost of pollution to society when considering standards to abate that pollution. In the context of agency rulemakings, the SCC provides the best available means to factor those costs into benefit-cost analyses. Commenter also suggest that EPA encourage the IWG to continuously update the SCC, as new economic and scientific consensus emerges. Such updates are in line with the stated intentions of the IWG, which committed to updating these estimates as the science and economic understanding of climate change . . . improves. Accordingly, EPA should continue to use the IWG's latest SCC estimates in its regulatory impact analyses on greenhouse gas performance standards under Section 111 of the Clean Air Act.
 Commenter 9514 states EPA properly relied on the federal government's most recent estimate of the social cost of carbon and that the agency's analysis comported with the standard guidance for regulatory analysis of costs and benefits.
 Commenter 9592 states that EPA's discussion of SCC in the RIA, as well as the sample calculations in the supporting technical document, "Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis, Executive Order 12866, Interagency Working Group on Social Cost of Carbon, United States Government" provide a pathway for future economic analyses that can justify the use of natural gas as a future existing source GHG standard of performance.
 Commenter 8925 states the 2010 USG SCCs are problematic for evaluating non-incremental changes in global emissions and, if applied, could result in misleading conclusions; that substantial management of future climate does not have a fixed future; and that good practice application guidance is needed to avoid misuse.
 Commenter 9396 also states the IWG's initial finding that the SCC was a useful tool in assessing costs associated with incremental benefits or costs that are derived from federal actions is underscored when it goes on to highlight the concern about rules which have a primary purpose of reducing GHG emissions stating, "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." Despite the admonition that the level of uncertainty associated with the development of the SCC reduced its relevance as a policymaking tool for the purposes of establishing cost-benefit analysis where GHG reductions present the predominant benefit, EPA is proceeding with regulatory actions that base significant regulatory burdens on industry based on GHG reductions calculated using the SCC. EPA and other federal agencies use the social cost of carbon (SCC) to estimate the climate benefits of rulemakings the projected net present value of carbon dioxide mitigation benefits over the next forty years from three vehicle rulemakings was estimated to range from $78 billion to $1.2 trillion ($2010), depending on which of the four SCC estimates were used (i.e., the average SCC at 5, 3, and 2.5 percent and the 95th percentile SCC at 3 percent). Finding $1.2 trillion dollars of benefits derived from application of the SCC meaningfully and substantially deviates from the warning by the IWG that application of the SCC may be inappropriate in circumstances where the benefits from the SCC are large to the extent that reductions of GHG are justified by the SCC benefits. The policy questions regarding decisions made by the IWG, such as choices concerning discount rates or measuring domestic regulation against global benefits and the application of the SCC have never been resolved or discussed in a public forum by the federal government but rages in the scientific and legal community. The best case for cost-benefit analysis is that the 2010 IWG recommendations are politically neutral in the sense of drawing on widely shared intuitions about human well-being. But cost-benefit analysis cannot cope with inherently political questions involving contested normative issues. Policymakers will have to find alternative tools when those questions predominate. The SCC reflects arbitrarily chosen damage functions or, more precisely, the average of several arbitrarily chosen damage functions. It emerges from three climate models of questionable reliability. Guesswork is not always fatal to cost-benefit analysis. Judgment is needed to distinguish between reasonable estimates and estimates that are excessively wide of the mark. Our judgment is that the IWG report relies on too many unwarranted assumptions and cannot be relied on. But technical problems can be repaired through further research. Computer models of climate change are improving and will eventually provide reasonable estimates of the SCC. The more serious problem for cost-benefit analysis of climate change is that climate regulation requires a series of judgments that are political and institutional rather than technical.
Commenter 10091 states the social cost of carbon as determined by the Interagency Working Group in their May 2013 Technical Support Document (updated in November 2013) and included in the Regulatory Impact Analysis of this EPA action is unsupported by the scientific literature, not in accordance with OMB guidelines, fraught with uncertainty, and thus unsuitable and inappropriate for federal rulemaking. As such, use of the SCC in cost/benefit analyses in this and all proposed federal regulation should be suspended.
 Commenter 10087 states that SCC is an arbitrary metric that should not be used for regulatory impact analysis, citing references.
Response 4.4-8: The comments regarding the aggregation of the SC-CO2 estimates and general application in a rulemaking context mirror those submitted to the Office of Management and Budget's separate comment solicitation on the SC-CO2 (78 FR 70586; November 26, 2013).  As a member of the interagency working group (IWG) on SC-CO2, EPA has carefully examined and evaluated comments submitted to OMB's separate solicitation.  EPA has also carefully examined and evaluated all comments received regarding SC-CO2 through this rulemaking process and determined that the IWG responses to the comments on the OMB solicitation address the comments on the aggregation of SC-CO2 estimates and use of the estimates in this RIA.  Specifically, EPA concurs with the IWG's response to these comments and hereby incorporates them by reference.   The remainder of this section elaborates on these comments in the context of this rulemaking.
EPA and other members of the IWG have reconfirmed their commitment to periodic review and update of the methodology and estimates to ensure that they continue to reflect the best available science and economics. Furthermore, EPA has determined that the SC-CO2 methodological recommendations require additional research, review, and public comment before it can apply them to a rulemaking context.
To help synthesize the technical information and input reflected in the comments, and to add additional rigor to the next update of the SC-CO2, the EPA and all of the other IWG members plan to seek independent expert advice on technical opportunities to improve the SC-CO2 estimates, including the approaches suggested by commenters and summarized in this document. Specifically, EPA and all of the other IWG members plan to ask the National Academies of Sciences, Engineering, and Medicine (Academies) to examine the technical merits and challenges of potential approaches to improving the SC-CO2 estimates in future updates. Input from the Academies, informed by the comments submitted to this rulemaking and the peer-reviewed literature, will help to ensure that the SC-CO2 estimates used by EPA continue to reflect the best available science and methodologies.
After careful evaluation of the full range of comments and associated technical issues described in section 4.5, EPA has determined that it will continue to use the current SC-CO2 estimates until further updates can be made to reflect forthcoming guidance from the Academies.  EPA believes that the current estimates continue to represent the best scientific information on the impacts of climate change available in a form appropriate for incorporating the damages from incremental CO2 emissions changes into regulatory analysis.  Therefore, EPA has presented the current SC-CO2 estimates in the analysis of illustrative benefit-cost scenarios for new sources in RIA Chapter 5 (see RIA Chapters 3 and 5; see Response to Comments 3.2 for detailed discussion about the conclusions of the RIA).   EPA will continue to consider these comments and will share the recommendations with the IWG as it moves forward with the Academies process.
The remainder of this section provides more detailed responses to the comments and recommendations.
Aggregation and selection of SC-CO2 estimates
Some comments discussed the aggregation of model results and the selection of the final range of SC-CO2 estimates. Both the 2010 TSD and the current TSD present information about the full distribution of SC-CO2 estimates within and across possible combinations of the  three models and five socioeconomic-emissions scenarios, for each of three discount rates (45 combinations in total) (see tables A2-A4 in Appendix A of the TSDs). Additional summary statistics for the distributions of the SC-CO2 estimates are also provided for each of the three models (see Table A5 in Appendix A). EPA believes that the information presented in the TSDs is sufficiently disaggregated to reflect the variability of the SC-CO2 estimates across models, input assumptions, and discount rates. In addition, EPA has provided the full set of Monte Carlo modeling results (10,000 model runs for each combination, for a total of 450,000 observations per emissions year) to outside researchers upon request and will continue to do so.
As discussed in the 2010 TSD, using the full distribution of the SC-CO2 estimates from the 45 scenarios would be impractical in a regulatory impact analysis. To produce a range of plausible estimates that still reflects the uncertainty about the SCC estimates, the results from the various model and scenario combinations (150,000 observations per emissions year for each of the three discount rates) were pooled to produce three separate probability distributions for the SC-CO2 for emissions in a given year, one for each assumed discount rate (2.5, 3 and 5 percent). Three point estimates were then derived from these pooled distributions representing the mean at each discount rate. EPA considers this approach for presenting expected SC-CO2 values across a range of discount rates to be appropriate for representing the central tendency of the SC-CO2 estimates across scenarios. The fourth value, the 95th percentile of the pooled distribution using a 3 percent discount rate, is included to represent higher-than-expected economic impacts from climate change further out in the tail of the SC-CO2 distribution - i.e., impacts that may have lower probability of occurring but relatively high damages. For purposes of representing the uncertainties involved, the TSDs emphasized the importance of considering and presenting the full range of these four estimates in regulatory impact analysis.
EPA agrees that the modeling of uncertainty in our analysis, including the uncertainty explicitly represented in the IAMs, may not capture the full range of uncertainty of the "true" value of the SCC. This concern is common to most quantitative assessments of uncertainty. By definition, the modeling of uncertainty requires a model, and therefore cannot capture the uncertainty associated with model selection. However, EPA does not agree that pooling results across models implies that the estimates capture the full range of uncertainty, nor is such a claim made in the TSDs or the rulemaking's supporting documents. Rather, EPA attempted to capture a reasonable range of uncertainty using information available in the peer-reviewed literature and the uncertainty analysis built into the models themselves. Using three models rather than one helps address, but does not eliminate, uncertainty associated with model choice.
Along with the four selected SC-CO2 estimates for each emissions year, the IWG presented more detailed information about the full distribution of SC-CO2 estimates for emissions in the year 2020. Specifically, the 2013 TSD reports information on the full distribution of the SCC estimates for emissions in year 2020 for each model, scenario, and discount rate combination , including the low-end percentiles (i.e., 1st, 5th and 10th percentiles).  In addition, as noted above, complete distributions for all emissions years are available upon request. While the IWG did not present a summary 5th percentile estimate (i.e., pooling results across the models and scenarios) for use in regulatory impact analysis, for reasons discussed below, the model and scenario specific statistics for 2020 provide a general sense of how the 5th percentile relates to the mean. Furthermore, as we note above EPA has provided the full set of Monte Carlo modeling results to outside researchers upon request and will continue to do so. This information may be used to calculate a full set of 5th percentile summary statistics that are comparable to the 95th percentile estimates provided in the TSDs.
As the 2010 TSD discusses, the SC-CO2 estimates derived from the three integrated assessment models have several significant limitations that could lead to a substantial underestimation of the SC-CO2. These limitations include the incomplete treatment and monetization of non-catastrophic damages, the incomplete treatment of potential "catastrophic" damages, and uncertainty in extrapolation of damages to high temperatures. The IPCC Fourth Assessment Report, which was the most current IPCC assessment available at the time of the IWG's 2009-2010 review, discussed these limitations and concluded that it was "very likely that [SCC] underestimates" climate change damages. Based on the current scientific understanding of climate change and its impacts, and on the limitations of the IAMs in quantifying and monetizing the full array of potential "catastrophic" and non-catastrophic damages, EPA and the other members of the IWG concluded that the distribution of SCC estimates may be biased downwards. Since then, the peer-reviewed literature has continued to support this conclusion. For example, the IPCC Fifth Assessment report observed that SCC estimates continue to omit various impacts that would likely increase damages. The 95th percentile estimate was included in the recommended range for regulatory impact analysis to address these concerns.
In addition, as acknowledged in the 2010 TSD, the SC-CO2 estimates derived from the three IAMs did not take into consideration the possibility of risk aversion. That is, individuals may have a higher willingness-to-pay to reduce the likelihood of low-probability, high-impact damages than they do to reduce the likelihood of higher-probability, lower-impact damages with the same expected cost. The inclusion of the 95th percentile estimate in the SC-CO2 values was also motivated by this concern. In contrast, EPA is not aware of systematic upward biases in the estimates comparable to the downward biases discussed above. For this reason, while EPA and other members of the IWG have been fully transparent regarding the entire range of uncertainty reflected in the probability distributions, EPA did not include a 5th percentile estimate in the selected range for regulatory  impact analysis.
The choice of the mean or the median as a measure of central tendency depends on the context. In skewed distributions, such as for the SC-CO2 estimates, the median will often give a more "typical" outcome, while the mean will give full weight to the tails of the distribution. In some cases, the typical outcome is of most interest. For example, in describing household incomes the median is most often used because the focus is on understanding the income of the typical household, and using the mean might distort this picture by giving undue weight to a small number of very wealthy households. In the climate change context, however, sound decision-making requires consideration of not only the typical or most likely outcomes, but also less likely outcomes that could have very large (or small, or even negative) damages (the tails of the distribution). Use of the median to represent the SC-CO2 in a regulatory impact analysis would not necessarily lead to the most efficient policy choice that uses resources wisely to mitigate potential climate impacts (e.g., maximize the expected net benefits). In this case, EPA believes that the mean is the appropriate measure of central tendency.
Application to the Analyses of Illustrative Benefit-Cost Scenarios for New Sources
EPA agrees with those supportive of the application of the estimates.  Most commenters who disagreed with use of the SC-CO2 specifically disagreed with the use of a domestic estimate and different discount rates.  See section 4.4-3 for EPA's detailed response to comments on the use of a global versus domestic SCC.  See section 4.4-7, for EPA's detailed response to comments about the selection of the discount rate.  See also EPA's detailed response to comments on the IAMs, damage functions, socioeconomic scenarios, and the time horizon in 4.4-1 and EPA's response to comments regarding peer review and other process-related issues for SCC, including the documentation discussing SC-CO2 methodology, in 4.4-5.
Regarding the recommendation to detail the significant and unquantified climate effects in the RIA, i.e. the impacts currently omitted from the IAMs used to estimate the SC-CO2, EPA has updated the RIA discussion to reference several publications that identify and discuss some of the important, unquantified climate effects.  EPA notes, however, that it is not possible at this time to provide a precise list of each model's treatment (i.e., included, excluded) of climate impacts.  Instead, the TSDs present a robust discussion of this key analytical issue, e.g., how each model estimates climate impacts, the known parameters and assumptions underlying those models, and the implications of incomplete treatment of impacts (catastrophic and non-catastrophic) for the SC-CO2 estimates.  Moreover, the discussion in the SC-CO2 TSD underscores the difficulty in accurately distilling the models' treatment of impacts in table-form.  Most notably, the use of aggregate damage functions -- which consolidate information about impacts from multiple studies -- in two of the models poses a challenge in listing included impacts. For example, within the broad agricultural impacts category, some of the sub-grouped impacts are not explicitly modeled but are highly correlated to other subcategories that are explicitly modeled. EPA agrees that it is important to update the SC-CO2 periodically to incorporate improvements in the understanding of greenhouse gas emissions impacts and will continue to follow and evaluate the latest science on impact categories that are omitted or not fully addressed in the IAMs. As previously noted, EPA and the other IWG members will seek external expert advice on the technical merits and challenges of potential approaches to update the damage functions in future revisions to the SCC estimates.  Finally, the RIA also continues to discuss climate change impacts, specifically an overview of the 2009 Endangerment Finding and climate science assessments released since then (see RIA, Chapter 3).