Social Cost of Carbon: Friend to Federal Energy Projects?

A new article warns project proponents to be ready to attack. It's not so clear they should.

In a starchy article in The Electricity Journal earlier this year, researchers from the University of Wyoming argued that “parties should be prepared to offer substantive comments on the suitability and accuracy of quantitative analyses of the impacts associated with greenhouse gas emissions” from energy development projects on federal land as a result of the National Environmental Policy Act (NEPA).  See Temple Stoellinger et al., Impact of Social Cost of Carbon Analyses in the Development of Energy Projects on Federal Land, 29 Electr. J. 63, 63 (2016).

This post questions the thrust of their claim and then questions whether the use of the “quantitative analyses” to which they refer (principally, the “social cost of carbon” estimates generated by the Office of Information & Regulatory Affairs (OIRA)) will really change much about the average energy project on federal lands.  The answer might surprise you.

The Wyoming Researchers’ Claims

The article by Stoellinger et al. is commendable in one respect: it takes a clear-eyed look at the so-called social cost of carbon (SCC) estimates that OIRA released in 2010 and updated in 2013, finding several serious troubles.  The growing economics literature on the problematic use of supposedly predictive “integrated assessment models” (IAMs) to monetize the expected damages from climate change—and thus the benefits of reducing greenhouse gas [GHG] emissions—establishes at least this much: we are nowhere near a social or professional consensus that this form of analysis is even worth the paper it’s (too often) printed on.  If the IAMs are junk, then the SCC is junk.  And there are good reasons to think the IAMs are, if not junk, subject to gross misinterpretation.  {See this one pager in Nature calling for dramatic and rapid improvements.}

Stoellinger et al. put the matter in a dramatic understatement:

IAMs are an imperfect method that at best provide a rough estimation: the actual economic impacts associated with an additional metric ton of GHG emissions are unknown.  Estimates of potential impact may vary greatly based on project factors and regional circumstances.

Stoellinger et al., supra, at 65.

One thing the Wyoming researchers neglect, however, is the origin story for IAMs, the SCC and what goes on in their absence.  This is where NEPA usually comes in, especially in places like Wyoming.  NEPA’s reputation is one of paralysis-by-analysis.  Yet NEPA’s alternatives analyses—whether in the form of a full environmental impact statement (EIS) or in the more summary environmental assessments (EA)—need not include monetized cost/benefit analysis of any sort.  The statute is clear on this point, see 42 U.S.C. § 4332(2)(C), as are the Council on Environmental Quality’s (CEQ) rules implementing it.  See 40 C.F.R. § 1502.23 (2015) (“For purposes of complying with the Act, the weighing of the merits and drawbacks of the various alternatives need not be displayed in a monetary cost-benefit analysis and should not be when there are important qualitative considerations.”).

So when, for example, the Bureau of Land Management undertakes a comprehensive review of future coal leases on federal lands, doing so under the auspices of a programmatic environmental impact statement, it is anticipated by many (including us here at the Lab) that BLM will call upon the SCC somehow in evaluating the coal leasing program and its future in a carbon-constrained world.  It’s just that that use of the SCC estimates won’t be required in any sense by NEPA and, as we’ve argued, probably won’t be much aided or clarified by use of the SCC.

With SCC numbers now just lying about so to speak, though, many well-meaning people argue that they should get the widest possible use.  Decisions like whether to permit further fossil fuel development on federal lands, indeed, seem tailor-made to include such an estimate on a marginal-ton basis—whether as a programmatic matter or as a matter of individual unit decisions lease-by-lease.

And, we should add, NEPA had a hand in the SCC numbers’ origins.  The figures were produced by OIRA in part because a Ninth Circuit panel pointedly rejected the National Highway Traffic Safety Administration’s EIS failing to consider the monetary benefits of stringent mileage requirements for motor vehicles.  In that case, Center for Biological Diversity v. NHTSA 538 F.3d 1172, 1213 (9th Cir. 2008), though, the Ninth Circuit’s actual holding was that, if NHTSA monetized the costs of stringent fuel economy standards, it was arbitrary of the agency to not at least attempt to monetize the benefits of stringency.  Less than two years later, OIRA published its first attempt at a marginal per-ton estimate of continued GHG emissions.

But the real impetus for the Wyoming researchers, to judge by their article, was the district court decision in High Country Conserv. Advocates v. U.S. Forest Serv., 52 F. Supp.2d 1174 (D. Colo. 2014).  That court faulted the Forest Service and BLM for failing adequately to describe the expected methane (CH4) and CO2 emissions from a mine expansion and, particularly, their failure to attempt any estimate at all of the environmental harms from the resulting CH4 and CO2 emissions.  When the agencies responded that such an analysis was effectively impossible, the district court rightly pointed out that there are always the SCC estimates.  See id. at 1190.

In a passage strikingly reminiscent of CBD,

Even though NEPA does not require a cost-benefit analysis, it was nonetheless arbitrary and capricious [necessitating the decision be set aside pursuant to 5 U.S.C. § 706(2)(A)] to quantify the benefits of the lease modifications and then explain that a similar analysis of the costs was impossible when such an analysis was in fact possible and was included in an earlier draft EIS.

Id. at 1191.

There is lot packed into this reasoning.  Federal agencies (and others) have for too long told themselves and the American people that, because estimating the costs of unchecked climate change is difficult-to-impossible, we should just assume them away.  Holdings like High Country Advocates and CBD target that very fallacy—and quite effectively.  What they don’t do is tell us what should replace the zero cost fallacy.

The Social Cost of Carbon: Good for the Status Quo?

What is truly remarkable about the SCC estimates is how ineffective they have been in practice if by effective we mean swaying agency analyses significantly.  The evidence to date is that factoring the SCC into an agency decision does little to change it.

In a careful empirical study last year, two economists found from a sample of 53 regulatory actions involving the SCC that CO2 reduction benefits averaged around 15% of the net benefits to be had from the subject actions and that SCC figures changed the sign of net cost/benefit totals only about 13% of the time.  See Robert W. Hahn & Robert A. Ritz, Does the Social Cost of Carbon Matter? Evidence from US Policy, 44 J. Legal. Studs. 229, 244-45 (2015).  It’s probably fair to say from that work that SCC numbers have—thus far at least—made climate change into a relatively minor decision factor at most US agencies (that even take it into account).

Now, in truth, these models tell us what we tell them to tell us.  And as their “damage functions” and discount rates increase and decrease, respectively, the SCC estimates will ramp up.  They did from 2010 to 2013, when OIRA released “updated” figures.  And they will continue doing so as long as they are updated.  But by how much?  If experience to date is any guide, not enough to make the real differences where they are needed most.

Indeed, contrary to the worries of some in federal “energy project” country, factoring the social cost of expected CH4 and CO2 emissions into leasing decisions probably won’t upset too many apple carts—at least not for the next decade or more.  And, it should go without saying, the agencies need not attempt to predict the unpredictable—like specific effects on the climate from the subject emissions.  See, e.g., WildEarth Guardians v. Jewell, 738 F. 298, 309 (D.C. Cir. 2013).

The models underlying the SCC and the discount rates OIRA prefers ensure that damage estimates will remain relatively modest well into the next decade.  (One caveat on federal coal might be worth registering here. It can be hard to portray a coal lease as offering a net social benefit.  Really hard.  Adding any more social costs to the ledger, no matter how slight by comparison, won’t help that sisyphean endeavor.)  So, especially when we consider how vital it is to our climate change goals that we stop investing more public infrastructure spending in subsidizing fossil fuels, the SCC premium added to decisions like those the Wyoming researchers raise seems like a good way to shelter the status quo from real scrutiny. carbon

NEPA’s wisdom was that what we need more of is full-spectrum alternatives analysis: analysis where an action’s “purpose” and “need” dictate the eligible options—whatever their monetized costs—in the full light of day.  Sunlight being the best disinfectant, it doesn’t contribute to that end to adopt techniques in NEPA reviews that are barely intelligible beyond a cohort of a few hyper-specialized economists.  Indeed, monetized cost/benefit balancing was an analytical technique NEPA’s authors knew well—and it was one they saw fit to ignore in § 102(2)(C).

Finally, as even the Ninth Circuit has indicated repeatedly, if BLM and the Forest Service simply avoid monetizing the benefits of leasing federal fossil fuel resources, NEPA will provide literally no grounds for forcing them to monetize the costsSee, e.g., Hapner v. Tidwell, 621 F.3d 1239, 1245 (9th Cir. 2010) (rejecting NEPA challenge arguing that Service had to quantify GHG emissions resulting from logging project).  To be sure, the harder question is whether the enabling statutes—especially the Mineral Leasing Act—empowering them to offer leases will allow them to do so.  On that score, some creative lawyering might be needed.

But in the struggle to mitigate our GHG emissions meaningfully, it will take several serious innovations to, in essence, replace fossil fuels in our current energy landscape.  If the executive branch’s lawyers do their part, expect to see more serious engagement with NEPA’s principles and less window dressing with fancy-sounding cost estimates.

 

{Image: A dragline and CAT 797 truck at North Antelope Rochelle opencut mine—courtesy of Peabody Energy viaWikimedia commons}

I teach environmental, natural resources, and administrative law at Penn State Law. Before teaching I was an enforcement lawyer at U.S. EPA. Along the way I've done work for environmental nonprofits and written a fair bit about NEPA.
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