What damages should the feds consider when regulating carbon?

A federal district court in Louisiana recently issued a preliminary injunction against the Biden administration’s use of its interim estimates for the social cost of carbon (SCC) pollution. The administration issued the interim estimates to implement President Biden’s Executive Order 13990, which directed agencies to estimate the full costs of carbon pollution, “including by taking global damages into account.” The court determined that the directive to focus on global effects contradicts the congressional intent of laws focused on promoting U.S. welfare, such as the Clean Air Act. 

We believe U.S. regulators should consider and report estimates of the social cost of carbon, both to the U.S. and globally.

The U.S. bears only a fraction of the damages accounted for in the Biden administration’s interim estimates of the SCC. The Biden administration is rejecting the Trump administration’s focus on damages to the U.S. as the only measure of the SCC, and returning to the Obama administration’s use of global damages as the sole summary measure of the SCC. An exclusive focus on the global benefits of U.S. greenhouse gas emissions reductions, based on the hope for reciprocal reductions by other countries, without regard for the certitude of such cuts, likely will lead to unnecessary costs to the U.S. economy. 

The Biden administration’s report about the interim estimates pointed to difficulties estimating damages to the U.S. This argument is unconvincing because a rich set of economic and environmental data is available with which to estimate damages to the U.S., as well as to U.S. citizens around the world.

In presenting the interim estimates, the administration also asserted that the global nature of carbon emissions “requires” consideration of how U.S. emissions controls will affect controls by other countries, and that use of a global estimate of damages allows the U.S. to actively encourage other nations to reduce emissions. Federal regulators should use the global SCC, in addition to the U.S. SCC, because it may help to promote international cooperation and indicate the scale of international cooperation that fighting climate change may require.   

Reporting both the global SCC and the domestic SCC may reduce disruptive whipsawing of carbon emissions control programs as a result of uncertainty between whether the global or domestic SCC is more appropriate.

We agree that analyses of U.S. regulations to reduce carbon emissions should explicitly address the possibility of foreign parties taking reciprocal actions. But reciprocity must be appraised in terms of emissions cuts — that is, which countries can be expected to cut their emissions, by how much, and by what dates, as a result of the U.S. action — and by whether such reciprocal cuts are based on binding obligations set out in treaties or, instead, just on promises such as those made in the Paris Agreement with its unfilled pledges. This treatment of reciprocal action follows longstanding practice in regulatory analyses to incorporate only those changes in behavior that are required by current law. 

The Biden administration’s exclusive focus on the global SCC presumes that U.S. policymakers are indifferent to the benefits to the U.S. versus benefits to the rest of the world — a perspective inconsistent with U.S. laws, such as the Clean Air Act, that suggest or require focusing on benefits to the “Nation” and not the world. Further, President Clinton’s 1993 Executive Order on regulation, which is still in effect, seeks a regulatory system that serves the American people.

Sole use of the global SCC is also inconsistent with another Biden instruction: more distributional analysis regarding “disadvantaged, vulnerable or marginalized communities” in the U.S. The domestic SCC is a necessary first step but the Trump-era domestic SCC is inadequate to help address the effects of climate change on poor Americans or people of color in the United States. We encourage analysts to break down the domestic SCC to shed light on such effects in the U.S.

What should federal regulators do? Their first responsibility is their duty to promote the general welfare of the U.S. They must, therefore, consider and report publicly the benefits to the U.S. from greenhouse gas emissions cuts and from reciprocal cuts from binding agreements with other countries. Focusing solely on global costs of carbon without considering costs to the U.S.  breaches that duty.

John D. Graham is professor and former dean at the School of Public and Environmental Affairs at Indiana University. Art Fraas is visiting fellow at Resources for the Future. Randall Lutter is senior fellow at the Manhattan Institute. Jason Shogren is Stroock Chair of Natural Resource Conservation and Management at the College of Business of the University of Wyoming.