Legal headaches await efforts to ax social cost of carbon

E&E News; February 13, 2017

Gutting a controversial method that federal agencies use to weigh climate change damages could come at a high legal price, analysts say.

Under the Obama administration, agencies used a metric, known as the social cost of carbon, to estimate the hidden costs of carbon dioxide emissions. That is, they assigned a dollar value to asthma attacks exacerbated by poor air quality or damage wrought by rising seas.

This system — part of the cost-benefit analysis the Obama administration used to determine whether it made financial sense for regulations to move forward — is widely expected to fall out of favor in the Trump era. The president and his leadership, after all, have expressed basic doubts about the overwhelming scientific consensus that humans cause climate change. Far from controlling emissions, they have vowed to roll back existing regulations.

But while there are a number of ways to lower the metric's dollar value and weaken its impact, legal experts say it would not be easy for the Trump administration to eliminate the social cost of carbon measurement.

"I don't think this is something they can do with a stroke of a pen, because the process by which [the social cost of carbon] was built into cost-benefit analysis was a function of careful study and a great deal of science and analysis," said Daniel Esty, an environmental law and policy professor at Yale Law School and former commissioner of the Connecticut Department of Energy and Environmental Protection.

"I'm not one of those folks who is out there believing that this is something that is going to happen quickly, or if it is something that happens quickly, that it won't be challenged and pushed back," Esty said.

Questions about the future of the measurement come as climate advocates and others brace for a wave of legal and legislative battles over the future of Obama's climate change legacy.

Reading the tea leaves in court decisions

The current social cost of carbon value, at roughly $40 per ton of CO2, is based on complex modeling research that estimates what the planet and global economy is likely to look like over the coming century. As carbon emissions go up over time, that value will continue to increase.

A memo leaked two months ago from the head of the Department of Energy transition team, Thomas Pyle, named the social cost of carbon as one of the climate-related initiatives that could be removed under Trump's energy plan.

Eliminating the metric would also fall in line with the wish list of conservative think tanks like the Heritage Foundation, which has sharply criticized the metric, saying it is an excuse for creating costly regulation.

In its "Blueprint for a New Administration: Priorities for the President," Heritage calls for the EPA administrator to "forbid including co-benefits from reducing emissions of criteria pollutants in all cost-benefit regulatory analyses."

"Rather than justifying a rule based on the direct benefits connected with the purpose of a regulation, co-benefits from reducing emissions of criteria pollutants are often used to justify the rule in question," the document reads.

But successfully eliminating the social cost of carbon is unlikely unless the Trump administration can prove that its removal isn't arbitrary, said Richard Newell, president of Resources for the Future and former administrator of the U.S. Energy Information Administration. He was also the co-chairman of a National Academy of Sciences committee that recently provided recommendations for updating the social cost of carbon estimate.

Newell pointed to a 2008 court decision in the 9th U.S. Circuit Court of Appeals that found the National Highway Traffic Safety Administration was at fault for not considering climate change impacts (Greenwire, Aug. 9, 2016).

"Basically, once the executive branch puts in place a procedure for estimating benefits and costs of different regulations and uses that as an input in their rulemaking process, it can't arbitrarily assume that some parts of the analysis are equal to zero," Newell said.

Revised evaluations?

Even if the Trump administration can't get rid of the social cost of carbon metric, there are a few ways it could make the number lower, perhaps even significantly lower.

The first approach has to do with the discount rate agencies use to calculate the price of a ton of CO2. Right now, federal agencies all use a discount rate of 3 percent, which is $36 per ton in 2007 dollars.

"The discount rate tells you how much you are in effect discounting future costs and how much you are reducing future benefits. So if you use a high discount rate, then there is a very significant cost, but it's 20, 30, 50 years away. The present value of the cost is low," Esty explained.

The Trump administration could decide instead to use a discount rate of 5 percent, which is $11 per ton of CO2. According to Esty, the problem with using a high discount rate is that people end up not being as worried about problems associated with climate change because those problems are decades away.

"So the discount rate is important to having a perspective on what is important that doesn't outweigh the present and undervalue the future," Esty said.

If the Trump administration does keep the social cost of carbon metric, agencies may also put more emphasis on the potential domestic damages from carbon pollution, experts said.

"You could certainly imagine revisions to the social cost of carbon, which is evaluated based much more strongly on U.S. impacts, although that raises the question of how impacts might be transmitted back to the U.S. through trade and other spill-overs," said Billy Pizer, a public policy professor at Duke University and former deputy assistant secretary for environment and energy in the Department of the Treasury.

The Trump administration could calculate a domestic social cost of carbon using a rough rule of thumb — national emissions are about 7 to 22 percent of the global total. To get a truly low number, the administration could decide to use a high discount rate ($11 per ton CO2) and calculate a national social cost of carbon from that figure.

"I think they could be litigated on those grounds, as well. But I think it would be easier for the court to find that it would be within their discretion to do that, than if being within their discretion to make that number zero," said Newell.

The most likely regulations that could be impacted by a change in the social cost of carbon would be the fuel economy and greenhouse gas standards for passenger vehicles, or CAFE standards. The midterm review for vehicles for model years 2022 to 2025 could be opened up for review, according to Newell.

"If they decided to do that and they used a much lower number for the social cost of carbon, that could significantly influence the benefits of the regulation," he said.

Another possibility could be reopening U.S. EPA's Clean Power Plan and using a much more limited regulation on power plants with a limited social cost of carbon. That could eliminate nearly half the benefits of the climate rule.

Advocates say they acknowledge the social cost of carbon is an imperfect tool but argue delaying actions on climate change will also have consequences in the long run.

"One thing to keep in mind is once we get to the future and we feel the impact of climate change, there isn't much to do," said Pizer.

Source: Cross-posted from E&E News