The Social Cost of Carbon
The U.S. Supreme Court issued a decision last Friday allowing the Biden administration to continue with its interim Social Cost of Carbon estimate of $51 per ton of carbon dioxide emitted. The Social Cost of Carbon is a monetary metric used in the United States to determine the long term damage done by a ton of carbon dioxide emissions in a given year.
The interim cost proved contentious, and was originally struck down by a federal judge in February of this year, with Louisiana leading a group of states to challenge the rule change. However, this injunction was quickly overturned in March with the 5th Circuit Court of Appeals rejecting the plaintiffs' arguments due to lack of standing. This led to Louisiana appealing to the Supreme Court for help, looking for an emergency motion to block the rule again, but this failed with the court issuing an order denying the request with no noted dissents. Despite these challenges, the Social Cost of Carbon is an important metric that can help guide climate policy in a socially responsible manner.
How is the Social Cost of Carbon Used?
The Social Cost of Carbon was created following a case brought by the Center for Biological Diversity against the U.S. government. The court found that the government has an obligation to account for the costs and benefits of changes in greenhouse gas emissions in its economic analysis. The estimate of the Social Cost of Carbon is based on a wide variety of factors such as socioeconomic predictions, climate projections, benefits and costs and discount rates. The determined cost is then incorporated into decision making across the U.S. for a variety of purposes such as resource planning for electric utilities, policy analysis, agricultural planning and could potentially be used as a basis for a federal carbon tax in the future.
Legal Challenges
The legal issues regarding the interim estimate started when the current administration reinstated the pre-2016 estimate of $51 per ton of CO2 emitted, reversing a decision which brought the estimate down to $7 per ton. The new figure is seen as a positive step towards an accurate and comprehensive estimate of climate change damages as it takes into account the worldwide effects of climate change, while the $7 estimate previously used only took future damages to the U.S. into consideration.
Including global impacts in the analysis of the Social Cost of Carbon was just one of the issues included in the arguments levied by the plaintiff states. In addition, the states argued that the rule did not undergo an adequate notice and comment period and further asserted that the estimate was not legally enforceable. Although the measure was not struck down by the Supreme Court, it will continue being litigated before the 5th Circuit.
Further Improvements
Despite widespread efforts to create an accurate metric, the Fifth Assessment Report from the Intergovernmental Panel on Climate Change identified various omissions in the Social Cost of Carbon estimates that were likely to increase damages. Current estimates do not include important physical, ecological and economic impacts of climate change due to the lack of precise information on the nature of the damages and a delay in adjusting for new findings.
As the future Social Cost of Carbon is determined, it is important that these missing factors are taken into account and reflected in the cost. The challenges to the interim cost show that states will be resistant to more aggressive climate policies, but the actions of the courts indicate that these policies are justified.
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