Court Halts Use of Biden Administration’s Social Cost of Carbon Metric

Judge James Cain of the U.S District Court for the Western District of Louisiana on Feb.11 issued a preliminary ruling restricting the use of the social cost of carbon, or SCC, estimates that federal agencies were directed to incorporate in their environmental analyses of major actions pursuant to an executive order that President Joe Biden issued in January 2021. The ruling is in response to a petition by 10 fossil fuel-heavy states, including Louisiana and West Virginia, which argued that the metric was arbitrarily set and would increase regulatory costs, thereby harming their economies and revenues.

The 2021 executive order reinstated the Interagency Working Group on the Social Cost of Greenhouse Gases, following which the Biden administration released interim SCC metrics. Created in 2008, SCC quantifies the long-term economic damage that results from one metric ton increase in carbon dioxide in a year. The previous Trump administration dismantled the IWG and lowered the SCC using a discount rate as high as 7 percent compared to the 3 percent level recommended by the IWG. Currently, the group is on the verge of making a decision on setting metric, but as it stands, Biden implemented the interim metric utilized under President Obama, which was $51 per metric ton. Trump’s estimate includes only damages implicated on the U.S., rather than global damages depicted in higher estimates by the Biden administration.

The SCC metric has faced widespread criticism from red states led by Louisianan Attorney General Jeff Landry because estimates exaggeratedly alleviate the cost estimates of lease sales, which in turn, reduced the number of lands being leased. This has resulted in states receiving less in bonus bids, ground rents and production royalties. Petitioners also argued that the metric does not consider the positive externalities of energy production and fails to justify the use of a global rather than domestic scope in calculating costs.

Created in 2008, SCC quantifies the long-term economic damage that results from one metric ton increase in carbon dioxide in a year. Metrics from methane and nitrous oxide were established in 2016 under the Obama administration, facilitating a wider SC-GHG metric, which has been used in regulatory benefit-cost analysis for over a decade. In February 2021, the administration reinstated a 2016 guidance for agencies to consider GHG emissions under the National Environmental Policy Act, including the use of SC-GHG.

Under the Biden administration the carbon cost estimate has not been widely applied but is being studied in a pending environmental review of oil and gas lease sales in western states.

Economists who helped create and determine the social cost of carbon, under the Obama administration have stated that if the recent ruling stands, then this is an indication to the world that the US is reluctant to confront the climate crisis head on.