Washington Insider: Measuring Social Costs of Carbon

Source: By Washington Insider, DTN Progressive Farmer • Posted: Sunday, January 24, 2021

Bloomberg is wandering fairly deeply into the regulatory weeds this week as it notes that the Biden climate agenda is working now to measure the “social costs” of carbon. The report highlights that among President Joe Biden’s first acts in office was the reassembly of a cross-government team to figure out this cost that Bloomberg calls a “wonky number with broad impacts on federal agency rules.”

The president signed an executive order Wednesday directing a team to publish an interim estimate of the social costs of carbon within 30 days. Environmentalists and climate scientists agree that undoing the Trump administration’s rules regarding how these costs are calculated and used will play a big role in federal policy, as well as in states that take their lead from the federal government.

Bloomberg explains that the issue is the estimated cost to society of releasing a ton of carbon dioxide, the main greenhouse gas, into the atmosphere. The revised metrics are to take into account everything from lost agricultural productivity to property damages from strong storms, to diminished fresh water availability – all because of climate change.

Measuring the cost to society – real and potential – from greenhouse gas impacts affects how regulators weigh the costs versus benefits of proposed rules. If a rule change would increase emissions, the social costs of carbon are multiplied by the number of extra tons of greenhouse gases expected and added to estimates of the rule’s costs. If a rule would lower emissions, the figure derived gets added to the benefits ledger.

Actually, such calculations have been U.S. policy for some time, Bloomberg says. The Obama administration’s Interagency Working Group on the Social Cost of Greenhouse Gases set the first federal social cost of carbon at $21 per ton. By the time President Obama left office in 2017, the figure had risen to $52 per ton.

However, President Trump disbanded the working group by executive order soon after taking office and his administration came out with new estimates that were as low as $1 per ton. A figure that low makes it easier for agencies to issue new regulations that are much more permissive because they can more readily find benefits that outweigh the costs.

Now, the new administration is reconstituting the former interagency working group, which pulls together experts from across the federal bureaucracy under the auspices of the White House Council of Economic Advisers and the Office of Management and Budget. The administration intends to estimate an “interim social cost” that ensures agencies are accounting for the full costs of pollution from carbon dioxide and other greenhouse gases, “including climate risk, environmental justice, and intergenerational equity,” Bloomberg says.

In June, the Government Accountability Office said the EPA under the Trump administration had arrived at much lower estimates because, among other things, it only considered domestic rather than global costs. It is almost certain that the Biden team will revert to the government’s pre-Trump approach.

Michael Greenstone, an economics professor at the University of Chicago, said reverting to the Obama-era calculations would yield a social cost of carbon of $125 per ton, assuming it took into account lower interest rates in recent years.

Bloomberg notes that the working group will be housed within the executive office, so the president has latitude to put the team back together without involving Congress directly. The same is true of calculating new cost estimates.

Interagency task forces are a common approach for issues where more than one agency has a stake, said Naomi Oreskes, a climate science professor at Harvard University. And Biden wants climate considerations to be part of every agency’s mission, not just the Environmental Protection Agency.

“That’s not to say that the usual suspects won’t get out their forces to try to undermine, challenge, or deny” the working group’s new findings, Oreskes said. “In the past they always have.”

Any figure the Biden team comes up with almost certainly will be challenged extensively in court, so the new effort is expected to be defended through formal notice and comment procedures, Greenstone said.

Just now, the legal status of “social cost” estimates in executive decisions is somewhat uncertain. Judges have ordered a lot of additional climate analyses recently but haven’t often dealt directly with the cost impacts of carbon. When environmentalists have sued to force agencies to use the metric in their environmental reviews, courts have often required additional analysis but deferred to agencies to decide which analytical tools to use.

The Federal Energy Regulatory Commission, for example, has for years rejected calls to consider the social cost of carbon in pipeline decisions, saying the metric is too speculative to be useful. Courts have largely accepted that, though groups are still pushing the issue in various cases.

In one major 2020 ruling, a federal judge delved into the technical aspects of the social cost of carbon and faulted the Trump administration for using an estimate that ignored global climate impacts.

So, we will see. The new administration appears to be quite serious about efforts to regulate impacts of climate change and can be expected to pursue a number of new rules for that purpose – including those concerning agriculture, which likely will continue to be highly controversial – and which should be watched closely by producers as they emerge, Washington Insider believes.


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