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Biden Reverts to Obama-Era Method of Valuing Climate Change (1)

Feb. 26, 2021, 8:02 PM; Updated: Feb. 26, 2021, 10:06 PM

The Biden administration is reverting to an Obama-era method of calculating the cost of greenhouse gases—a move that industry is almost certain to challenge.

The social cost of carbon is the estimated harm to society of releasing carbon dioxide—the main greenhouse gas—into the atmosphere. It has been used to shape dozens of energy-related regulations.

The Biden approach, which pegs the social cost of carbon at $51 a ton for 2021 after adjusting future costs at a 3% discount rate, replaces 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, an administration official who spoke on condition of anonymity said Friday.

The Trump-era estimates “do not reflect current science and economics,” the official said.

Range of Impacts

The figure takes into account a wide range of impacts, including lost agricultural productivity, property damages from strong storms, and diminished fresh water availability.

Also included in the social cost of greenhouse gases are estimates of the money saved from avoiding each additional ton of methane and nitrous oxide.

A higher dollar figure makes it harder for agencies to issue new regulations that are more permissive to industry because it more starkly shows the benefits of tough rules outweigh the costs.

In June, the Government Accountability Office said the EPA under Trump had arrived at its lower estimate because, among other things, it only considered domestic costs, rather than global costs.

More: How Biden Is Putting a Number on Carbon’s True Cost: QuickTake

Seeking Public Comment

In drafting the permanent social cost of greenhouse gases, the task force will solicit public comment on “how to incorporate the latest science and economics,” and will engage with “experts, the public, and stakeholders,” according to the administration official.

Paula DiPerna, special adviser at CDP, a British nonprofit that collects climate disclosures from companies, has warned that a very high social cost of carbon “would do nothing but scare people.”

An extremely high dollar figure suggesting that the risks of climate change are shockingly high could spook investors or signal to the public that the problem is essentially insoluble.

“You have to frame this as a way of making invisible threats visible so they can be acted upon,” DiPerna said. “Pushing for a higher price doesn’t always get you to action. The price has to be correct and truly reflective of hidden costs, but then it has to come with an action plan to address those costs. One without the other is frightening to the average person.”

Mixed Reactions

Environmental groups and academics were quick to applaud the change.

“This is a step in the right direction for all of our communities—and especially good news for communities of color long exploited by oil and gas CEOs and disproportionately exposed to toxic pollution,” Matthew Davis, legislative director at the League of Conservation Voters, said in a statement.

Richard Revesz, director of the Institute for Policy Integrity at NYU School of Law, said the change signals the Biden administration’s “commitment to address the climate crisis and its respect for science, both of which were sadly absent in the Trump administration.”

But Rep. Bruce Westerman (R-Ark.), top Republican on the House Natural Resources Committee, said the Biden administration should focus more on technological innovation to fight the climate crisis.

“I wonder how they’re going to impose a $51 per ton on the rest of the world?” Westerman said. “The carbon all gets mixed together in the atmosphere. What we need to be doing is coming up with new technology that’s not only cleaner but also more economical, so that other countries that are polluting the environment much more than we are would adopt that technology.”

Nick Loris, a deputy director for economic policy studies at the conservative Heritage Foundation, added that he doesn’t consider the models used to calculate the social cost of carbon to be credible tools for rulemaking.

“These changes are less about the current state of science and economics and more about agency officials having the authority to make social judgments that will have serious impacts on cost-benefit analysis,” Loris said.

Biden signaled his intention to rework the social cost of carbon on his first day in office, when he signed an executive order directing the government to publish a new, interim cost of greenhouse gases within 30 days.

The White House published a Federal Register notice on Feb. 19 laying out ground rules on how the federal government will conduct climate analyses when reviewing the environmental impact of government projects.

(Updated with additional reporting throughout.)

To contact the reporters on this story: Stephen Lee in Washington at stephenlee@bloombergindustry.com; Courtney Rozen in Washington at crozen@bgov.com

To contact the editors responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com; Andrew Childers at achilders@bloomberglaw.com

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