EnerKnol Research

President Trump recently signed a sweeping executive order that aimed to undo multiple climate regulations and agency actions that potentially burden the development of domestically produced energy resources.

Among other important actions, the President's order revoked the guidance for federal agencies to consider climate impacts in National Environmental Policy Act (NEPA) reviews. It rescinds the social cost of carbon, directing agencies to revert to a 2003 guidance in accounting for the monetary value of emissions. Eliminating the social cost of carbon, which formed the basis of major air quality regulations under the Obama administration, will likely cause agencies to raise the discount rate (reduce estimates of the future effects of emissions reductions) and focus on domestic benefits of future rules, disregarding global benefits. 

Reverting to the 2003 analyses would make it simpler for agencies, such as EPA and the Department of Energy (DOE), to weaken multiple climate regulations by reducing the benefits ascribed to climate regulations, such as the 2016 methane rule that is subject to review under the executive order.

Estimating carbon costs based on the 2003 guidance (OMB Circular A-4 of September 17, 2003) could have widely applicable implications, facilitating weaker climate-related regulations. Social cost of carbon (SCC), a measure of the monetized damages associated with an incremental increase in carbon emissions in a given year, provided the scientific basis for the Obama administration’s climate regulations.

The new executive order also disbands the Interagency Working Group (IWG) on the social cost of GHG emissions and withdraws IWG-issued documents presenting the social cost of carbon to monetize GHG changes. Instead, the order directs agencies to use a 2003 guidance on regulatory impact analysis when accounting for the monetary value of GHG changes resulting from regulation. 

Without the IWG, a consistent figure for this cost will no longer be used, as agencies can make their own assessments under the 2003 OMB guidance. As a consequence, agencies are likely to raise the discount rate (reduce their estimates of the future effects of emissions reductions) and focus on domestic benefits of a rule, disregarding global benefits. Under the 2003 guidance, analysis of economically significant regulations from the domestic perspective is required, while analysis from the international perspective is optional; the guidance allows 7 and 3% discount rates. The IWG estimated the social cost of carbon value at $36 per metric ton for 2015 (at a 3% discount rate), $50 per metric ton in 2030, and $69 per metric ton in 2050. From the IWG technical document, it can be seen that raising the discount rate from 3 to 5% would reduce the SCC value from $36 to $11 a ton.

The order does not prevent monetization of climate impacts; rather, it aims at a less stringent process, implying that the Administration recognizes that agencies need to quantify such impacts in their regulatory actions. Court rulings have interpreted statutes to allow for valuation of carbon emissions. In 2008, prior to convening the IWG, the ninth Circuit Court of Appeals ruled that the Department of Transportation actions were arbitrary by failing to monetize the value of emissions in setting the fuel economy standards. Recently, in 2016, the seventh Circuit Court of Appeals upheld DOE’s use of the SCC in setting its energy efficiency standards.

The IWG first established an SCC in 2010 and revised the figures in 2013 with approximately 50% higher estimates. Federal agencies used the SCC to evaluate the benefits of regulations, energy efficiency standards, renewable fuel mandates, policies intended to mitigate climate impacts.

EnerKnol is an innovative energy policy data and analytics company, conceived to solve the vast market need for real-time access to the critical regulatory information required to make decisions in the energy industry, from fossil fuels, to power & utilities, environmental commodities, renewables, and beyond.