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Much-Debated Climate Metric Gets Immediate Use Under Biden (1)

March 16, 2021, 10:01 AM; Updated: March 16, 2021, 11:49 PM

The Biden administration isn’t awaiting a final price tag on a final greenhouse gas assessment metric before it starts working on new regulations—even though the final number could support even tougher regulation.

The implications are far-reaching for the administration’s efforts to address climate change, affecting everything from vehicle emission standards to permits for oil, coal, and gas projects.

Administration officials—in a move that 12 states swiftly challenged in court—raised the social cost of carbon to $51 per ton in late February, replacing a Trump-era method that was as low as $1. The new figure will be used on an interim basis while an interagency working group readies a more complete update expected in early 2022.

The social cost of carbon is an analytical tool used by many agencies to calculate the impacts of their actions by putting a price on emissions. A higher dollar figure makes it harder for agencies to issue new regulations that are more permissive to industry because it shows more starkly the benefits of how tough rules outweigh the costs.

The Environmental Protection Agency “intends to use these interim values for any rulemaking activities until final values become available,” an agency spokeswoman said.

A higher value for the social cost of carbon would mean agencies could write more stringent rules that clamp down harder on emissions. But the smart play is for agencies to start now and include language in their proposed rule that call for comments on available options should the social cost of carbon rise, according to Cary Coglianese, a regulatory law professor at the University of Pennsylvania Law School.

“What you need to do is show that your final rule is a logical outgrowth of your proposed rule,” Coglianese said.

‘It Takes Time’

Another benefit to moving quickly is that the clock is already ticking on President Joe Biden’s term, and there’s no guarantee that agencies could finalize their rules before 2024, said Richard Newell, who co-chaired a 2017 National Academy of Sciences study that the Biden administration is using to develop the social cost of carbon.

“It takes time to develop regulations,” said Newell, now president of the think tank Resources for the Future.

Agencies could move now by doing sensitivity analyses that account for a range of variables, Newell said. Building that work into a regulatory proposal early on could safeguard against claims that the agency is acting arbitrarily if it wants to revise its work when a new estimate for the cost of carbon is released, he said.

Yet another reason for agencies to act swiftly is that the urgency of climate change demands it, said Amit Narang, a regulatory policy expert with the watchdog group Public Citizen.

Susan Dudley, who headed the White House Office of Information and Regulatory Affairs under President George W. Bush, agreed that agencies will start using the new social cost of carbon right away. She said it is “based on methodology that previously received notice and comment” during the Obama administration.

Aggressive Air Action

EPA air regulations rank among the first targets. Pressure from early promises and the potential for tough battles in the courts mean Biden is under a time crunch, and the rollout of a beefier carbon cost is an important tool.

Lengthy legal challenges that have plagued the EPA across administrations put “real pressure” on the agency to move fast, said Hana Vizcarra, a staff attorney with the Harvard Law School’s Environmental & Energy Law Program.

That’s especially true, she said, when another four years in office isn’t guaranteed.

“They want to see these things reach conclusion, they want to see courts actually consider the issues and make decisions, because that’s the only way anything will be lasting,” Vizcarra said.

Two of Biden’s articulated air and climate priorities—cutting emissions from methane and vehicles—are “intriguing wild cards” moving forward, according to University of Michigan professor and Brookings Institution fellow Barry Rabe.

“Over-arching the Biden administration is how far they want to go through regulatory action under the Clean Air Act, as opposed to a build-back-better kind of a statute,” Rabe said. “Both of these are potentially tailor made, certainly, for that social cost of carbon application,” he said.

The Trump administration scaled back on oil and gas sector methane limits by letting emitters forgo certain leak monitoring requirements.

On cars, Trump’s EPA slashed vehicle efficiency requirements and rescinded a long-standing California waiver that allowed the state to set more stringent clean car rules that other states could adopt. Environmental groups and states sued over both, claiming the rollbacks skirted around administrative procedures and endangered the public’s health.

In addition to the new carbon price tag, regulatory uncertainty in the energy and vehicle manufacturing sectors also could influence rulemaking, Rabe said.

“I think both the vehicle sector and the oil and gas sector further test the question of whether or not there are deep divides in industry that might create some opportunities for the Biden administration,” he said.

Fossil Fuel Permitting

At Interior, the Biden administration is expected to use the social cost of carbon to deny some permits for oil, gas, and coal mining projects based on their downstream carbon emissions, said Dan Farber, faculty director of the Center for Law, Energy, and Environment at the University of California-Berkeley.

Interior also could impose a carbon-offset requirement for permit renewals for existing high-emissions developments on federal lands, Farber said.

The agency will use the social cost of carbon as part of the rulemaking process “as the law requires,” spokeswoman Melissa Schwartz said.

The National Environmental Policy Act requires full disclosure of the social cost of carbon associated with any major project on federal lands but not a rigorous cost-benefit analysis, said Jason Schwartz, legal director for the Institute for Policy Integrity at NYU. That could force Interior officials to make a judgment call, he said.

“Then it’ll be up to the agency officials to figure out, does this impact call for some mitigation under NEPA?” Jason Schwartz said. “Or does it mean the no-action alternative?”

Interior could use the social cost of carbon to justify adjusting royalty rates for oil, gas and coal development based on their environmental and social impacts, he said.

And the consideration of a project’s social cost of carbon could extend well beyond fossil fuel development.

“In terms of surprising applications, I could imagine efforts to take into account the impacts of activities such as logging and grazing practices on carbon retention by soils,” Farber said. “The question would be where there’s a sufficient scientific basis for estimating the impacts.”

Congress Engaged

Congressional Republicans who fought the Obama administration’s social cost of carbon efforts are already pushing back.

Sen. James Lankford (R-Okla.) filed amendments—which the Senate didn’t take up—to block the use of the carbon accounting during February debate over the fiscal 2021 budget resolution (S. Con. Res. 5), including one to bar its use unless China made significant cuts in its own greenhouse gas emissions (S. Amdt. 423). Lankford’s office didn’t immediately respond to questions about his future plans to target the issue.

Democrats have drafted bills that would set a carbon price on emissions, including the Methane Emissions Reduction Act of 2021 (S. 645) introduced March 9 by Sens. Sheldon Whitehouse (D-R.I.), Cory Booker (D-N.J.), and Brian Schatz (D-Hawaii).

It would direct the Treasury Department to assess an $1,800-per-ton fee on methane emissions starting in 2023 but allow producers to opt out if they demonstrate they took early action with verifiable data.

—With assistance from Ellen M. Gilmer.

(Clarifies the applicability of royalty rates in the 28th paragraph. )

To contact the reporters on this story: Stephen Lee in Washington at stephenlee@bloombergindustry.com; Jennifer Hijazi in Washington at jhijazi@bloombergindustry.com; Bobby Magill at bmagill@bloombergindustry.com; Dean Scott in Washington at dscott@bloombergindustry.com

To contact the editor responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com

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