The Trump administration faces likely legal challenges as it looks to exploit a crucial tool for evaluating the economic cost of climate change in an effort to justify plans to unravel environmental rules.
The idea behind the so-called “social cost of carbon” is that estimating the economic damages from every additional ton of greenhouse gas emissions allows regulators to more accurately assess the costs and benefits of public policies. Michael Greenstone, previously a chief economist for Barack Obama’s Council of Economic Advisors, has called it “the most important number that you’ve never heard of.”
But in late March, President Trump issued an executive order that called for disbanding President Obama’s social cost of carbon working group, withdrawing the documents underpinning the current estimates, and directing agencies to consult 14-year-old guidelines from the Office of Management and Budget for future calculations. The same order directed federal agencies to review a series of environmental regulations put in place under Obama, and “suspend, revise, or rescind” them "if appropriate."
The central estimated social cost of carbon now stands around $40 per metric ton of carbon dioxide, and ticks up over time. But if federal agencies ignore or significantly reduce that figure, it could offer the administration a rosier economic cover story for dismantling the Climate Action Plan, Clean Power Plan, and mileage standards, or for signing off on controversial pipelines, fracking on federal lands, and much more. Such changes could have substantial impacts on deployment of renewable energy sources, investment in carbon capture technologies, and research on improved vehicle efficiency.
If a forthcoming environmental rule relies on a much lower cost estimate, legal challenges are almost inevitable, says James Stock, a Harvard professor who also served as chief economist on President Obama’s Council of Economic Advisors.
Indeed, attorneys at both the Environmental Defense Fund and Natural Resources Defense Council say they are watching the administration’s next steps closely.
“We plan to track very carefully how these issues are treated and the decisions that are being made going forward,” says Martha Roberts, an attorney focused on climate issues for the Environmental Defense Fund. “It’s vital that accurate science and analysis of the risks of climate change … are reflected in government decision making.”
To date, the social cost of carbon hasn’t generally been the make or break factor on any given public policy cost-benefit analysis, says Danny Cullenward, a Stanford lecturer and energy economist. Rather it provided an additional economic and climate justification for policies. In the same way, it’s not likely to be the single underpinning that, once watered down or removed, suddenly allows the Trump administration to enact the sweeping changes to environmental rules that they aspire to make anyway.
The bigger play here is to dull or destroy an instrument that could become much sharper in the future, as the mounting body of science provides a clearer sense of the true, higher cost of greenhouse gas emissions.
“It was much more a tool intended to be proactive on climate policy, rather than as a defensive line to hold ground,” Cullenward says.
It’s unclear if the Trump administration will simply allow federal agencies to each calculate their own social cost of carbon going forward, or eventually issue a new, more favorable one through an executive order or other means. Among other possibilities, agencies could shrink the estimated cost by narrowing the geographic scope from global to domestic, or increasing the discount rate, which is used to account for the lower value society places on damages in the distant future, Cullenward says. Crucially, the guidelines cited in Trump’s executive order called for a discount rate as high as 7 percent, compared to rates as low as 2.5 percent under the current calculations.
That could bring the social cost of carbon down to “low single digits,” estimates Harvard’s Stock, adding that it would be totally out of line with scientifically grounded estimates of future economic damages.
Whatever the mechanism, the lower the figure agencies come up with, the greater the odds it and the policies it is used to justify will be challenged in court.
EDF’s Roberts notes that the current working group estimates are based on a large body of science projecting likely damages from climate change, input from across the federal government, several rounds of public engagement, and at least limited legal review.
In November 2007, the Ninth Circuit Court of Appeals ruled that the National Highway Traffic Safety Administration's exemption of light trucks from vehicle mileage standards, known as the SUV loophole, was “arbitrary and capricious.” The court concluded the administration’s environmental assessment of the final rule was insufficient because it ignored the economic benefits of lower greenhouse gas emissions, as required by earlier federal laws.
"While the record shows that there is a range of values," the opinion states, "the value of carbon emissions reduction is certainly not zero."
Meanwhile, in a case brought by a commercial refrigeration company challenging Department of Energy efficiency standards, the 7th U.S. Circuit Court of Appeals asserted last year that the agency had the authority to take the social cost of carbon into account, and that the analysis used to determine the particular figures was sound.
“It will be a heavy lift to come up with something that’s similarly rigorous, and if it’s not, it will be vulnerable to legal challenges as arbitrary and capricious,” Roberts says.
Many researchers believe that the current estimates of the social cost of carbon are actually far too low, not far too high. In a study published last year, researchers at Stanford, the University of Exeter, and other institutions said that incorporating various environmental tipping points, such as the dieback of the Amazon rainforest, pushes the social cost of carbon to $116 per ton of carbon dioxide. A 2015 paper concluded that if climate change slows the overall growth of the economy, as increasing evidence suggests, the cost rises to $220 per ton.
“If climate change affects not only a country’s economic output but also its growth,” coauthor Frances Moore said at the time, “then that has a permanent effect that accumulates over time, leading to a much higher social cost of carbon.”