EXAMPLE 3.2 Using the Social Cost of Capital: The DOE Microwave Oven Rule In 2013, the Department of Energy (DOE) announ

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Example 3 2 Using The Social Cost Of Capital The Doe Microwave Oven Rule In 2013 The Department Of Energy Doe Announ 1 (261.39 KiB) Viewed 30 times

EXAMPLE 3.2 Using the Social Cost of Capital: The DOE Microwave Oven Rule In 2013, the Department of Energy (DOE) announced new rules for energy efficiency for microwave ovens in standby mode. By improving the energy efficiency of these ovens, this rule would reduce carbon emissions. In the regulatory impact analysis associated with this rule, it was necessary to value the reduced damages from this lower level of emissions. The social cost of carbon was used to provide this information. Using the 2010 social cost of carbon produced a present value of net benefits for the microwave oven rule over the next 30 years of $4.2 billion. Since this value is positive, it means that implementing this rule would increase efficiency. We know that using the revised 2013 number would increase the present value of net benefits, but by how much? According to the DOE, using the 2013 instead of the 2010 social cost of carbon increases the present value of net benefits to $4.6 billion. In this case the net benefits were large enough both before and after the new SCC estimates to justify implementing the rule, but it is certainly possible that in other cases these new estimates would justify rules that prior to the change would not have been justified. Note that microwave purchasers will bear the cost of this set of rules (as prices rise to reflect the higher production costs), but they will not receive all of the benefits (those reflecting a reduction in external costs). However, the DOE notes that due to the increased energy efficiency of the appliances subject to these rules (and the resulting lower energy costs for purchasers), the present value of savings to consumers is estimated to be $3.4 billion over the next 30 years (DOE 2013), an amount that is larger than the costs. In this case the rules represent a win for both microwave consumers and the planet. Sources: http://energy.gov/articles/new-energy-e ... rs-energy- bills; Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis—Under Executive Order 12866, https://obamawhitehouse.archives.gov/si ... y-2015.pdf