An unprecedented federal court ruling this week validated the way the Obama administration measures the social cost of carbon (SCC), a decision that could have wide-ranging impacts on the future of the energy industry and the way the United States addresses environmental justice.
On Monday, the Chicago-based 7th Circuit U.S. Court of Appeals unanimously rejected an industry-backed request to overturn a 2014 Department of Energy (DOE) regulation that set efficiency standards for refrigerators. In doing so, the court decided that the DOE has the authority to use SCC as part of its overall cost-benefit analysis when considering environmental regulations.
This is the first time a court has weighed the legality of carbon accounting, which many congressional Republicans, manufacturers and fossil fuel interests oppose as inaccurate and unreliable. But the court sided with the DOE and environmental groups that believe the social costs of carbon emissions can, and should, be assessed on an economic scale.
Currently the government has pegged the SCC at $36 per metric ton of carbon dioxide emitted into the atmosphere. With the impacts of climate change getting worse, that cost is slated to rise to $50 a metric ton in 2030 and $69 a metric ton in 2050.
Gernot Wagner, a research associate at Harvard’s School of Engineering and Applied Sciences and an expert on carbon economics, told me that the ruling is a big win, both legally and in as an overall message.
“The verdict is clear: ignore climate risk at your peril,” he said.
According to Wagner, “if climate change is the mother of all externalities, the cost of carbon is the mother of all benefit-cost analysis.”
Social Cost of Carbon
In explaining how the benefit-cost analysis works, he said that every time someone flies across the country and back they emit about one ton of carbon, which causes about $40 worth of “climate damages to the economy, ecosystems, human health and the planet.”
“All 300 million of us—all seven billion of us—then pay a fraction of a penny every time I get to take a round-trip to San Francisco,” he said. “That’s the real problem: I benefit, the rest of society pays.”
He said the solution to this is for everyone to pay for the damage their flights cause and “internalize the externality.” This is the ultimate goal of putting a price on carbon.
In rejecting the industry’s arguments against the DOE’s carbon price, Senior Judge Kenneth Ripple, who was appointed by President Reagan, wrote in the opinion that this “is not a close call.”
“We are convinced that DOE’s engineering analysis, including its use of an analytical model, was neither arbitrary nor capricious,” she wrote.
Jayni Foley Hein, the policy director at the Institute for Policy Integrity at NYU School of Law, told me that not all companies oppose SCC, and that some, like Microsoft, actually have an internal social cost of carbon.
She said that while many people haven’t heard of the social cost of carbon, “all Americans benefit from the smarter agency decision making that follows from its use…By using the SCC, agencies can better analyze all relevant costs and benefits, and provide a more accurate picture of expected net societal costs or benefits.”
David Doniger, director of the climate and clean air program at the Natural Resources Defense Council, told me that the ruling indicates that the courts will also side with the EPA in taking similar SCC considerations into account.
“Fossil energy companies oppose pollution standards that would make them responsible for the harm they cause our health and our planet,” he said. “They’d like the public to think government health, safety, and environmental standards have only costs, no benefits. So they are seeking to block the social cost of carbon as a way to block considering benefits.”
While environmental regulations have both costs and benefits, carbon pollution is a one-sided deal that threatens Americans’ health and safety, according to Doniger. These impacts are both direct and indirect, and aren’t always obviously environmentally oriented.
“Just last week a former national security adviser to President George W. Bush acknowledged that climate change was creating refugees and terrorists,” said Doniger. “So the damage from ignoring climate change goes well beyond what we normally think of as ‘environmental’ issues; it’s a core national security issue.”
Climate change is also a core environmental justice issue. Energy generation from coal-fired power plants, which are very carbon intensive, also creates sulfur and nitrogen pollution, which increases asthma and can lead to other respiratory issues, especially for children. Power plants and other heavy industry are often located near low-income communities and communities of color.
Democratic presidential nominee Hillary Clinton’s campaign released a plan for addressing environmental justice earlier this summer. The plan states that “across America, the burdens of air pollution, water pollution, and toxic hazards are borne disproportionately by low-income communities and communities of color.”
For example, according to the fact sheet, in one area of Houston, Texas, that is 85 percent Latino with 27 schools located within a mile of a chemical facility, children attending public schools are 56 percent more likely to get leukemia than those who live 10 miles away.
“Simply put, this is environmental racism,” states the fact sheet.
Furthermore, the impacts of climate change in the form of more severe storms, longer heatwaves, and rising sea levels, will “disproportionately affect low-income and minority communities, which suffer the worst losses during extreme weather and have the fewest resources to prepare.”
The Court of Appeals’ decision to allow the government to continue assessing the social costs of carbon will help Clinton address this environmental racism should she win the presidency in November.