U.S. Supreme Court Allows Use of Social Cost of Carbon

The U.S. Supreme Court on May 26 rejected a petition from a coalition of states led by Louisiana to block 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 by an executive order that President Joe Biden issued in January 2021.

In March, the Fifth Circuit Court of Appeals stayed a Louisiana district judge’s injunction against the use of the metric, rejecting the arguments made by Louisiana that the interim SCC metric could cause them a real injury. The appeals court found that petitioners’ claim “appear untraceable because agencies consider a great number of other factors in determining when, what, and how to regulate or take agency action.” The Supreme Court declined to vacate the stay and block the use of the climate metric.

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. The discount rate is a key factor influencing SCC estimates. A lower discount rate results in a higher SCC value and vice versa. The previous Trump administration dismantled the working group and lowered the SCC using a discount rate as high as 7 percent compared to the recommended 3 percent level. The federal government has used values ranging from $41 per metric ton under the Obama administration to near $1 under President Trump and, and now an interim estimate of $51 under the Biden administration.

The SCC metric has faced widespread criticism from fossil fuel-heavy states, including Louisiana and West Virginia, on grounds that it exaggeratedly alleviates the cost estimates of lease sales, which in turn, reduces the number of lands being leased. The 10-state coalition, which challenged the interim SCC, 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.