Measuring Smoke

The new social cost of carbon calculation
By John Nolan
October 17, 2016
COLUMN : Legal | Management

There is a story that Sir Walter Raleigh once wagered with Queen Elizabeth that he could measure the weight of the smoke from his cigar. She took the bait. Raleigh first weighed the full cigar on a scale, then began to smoke it, tapping the ashes out onto the scale as he smoked. Finishing the cigar, he placed the unsmoked butt end onto the scale with the ashes, measured the weight and subtracted that number from the weight of the full un-smoked cigar.

Over four-hundred years later, the federal government believes it is capable of not only measuring the weight of Walter Raleigh’s smoke, but also of measuring the global economic impact his cigar’s emission has on climate change. We see this in the implementation of federal regulations relating to energy and carbon emissions.

The “social cost of carbon” as reported by the Environmental Protection Agency is an estimate of the economic damages associated with a small increase in carbon dioxide emissions— conventionally, one metric ton—in a given year. The SCC, expressed in a dollar figure (currently $36), also represents the value of damages avoided for a small emission reduction. The EPA has described the SCC as a comprehensive estimate of climate change damages on a global scale, including changes in net agricultural productivity, human health and property damage from increased risk in flooding and sea-level rise.

The Backstory

As part of its “rule-making” function in the development of federal regulations, the SCC is employed by federal agencies such as the department of energy. The SCC finds its way into the regulation process as part of a “cost-benefit” analysis that agencies are required to undertake when proposing new administrative rules.

The SCC has developed as a factor for consideration in energy-related regulations. This is rooted in a 2008 court challenge by several non-governmental organizations which argued that the National Highway Traffic Safety Administration had not sufficiently considered the societal costs of carbon emissions when setting Corporate Average Fuel Economy standards for automobiles.

In that case, the U.S. Court of Appeals for the 9th Circuit found that, in developing regulations, the NHTSA had, in essence, ignored the concept of SCC in considering whether there was a measurable benefit to society in carbon reduction. The subsequent administration ran with this concept, setting up an interagency “working group” to further develop the concept of SCC as an evaluative tool to support further efforts to write federal regulations effectuating carbon reduction.

Recent Developments

Recently, a very significant court decision regarding the SCC has been handed down. On August 8, 2016, another federal appellate court rejected a challenge to a new rule from DOE regarding commercial refrigeration equipment which relied in part upon the current SCC of $36.

According to the court decision, Zero Zone, a manufacturer of refrigeration equipment, together with sympathetic trade groups, argued that the methodology used to determine the applicable SCC was flawed. They contended that a multitude of variables, such as assumptions regarding sealevel rise, were arbitrary. The court rejected this argument and found that the method of calculating the SCC was neither “arbitrary nor capricious.”

The Zero Zone decision has provided legal cover for the federal government against further challenges to federal agency rule-making, relying not only upon the general concept of the SCC, but also on the estimated dollar figures related to carbon emissions costs globally.

Fenestration Implications

The government’s move to connect the concept of measuring the economic effects of global sea-level rise to the fenestration industry is clear. Energy-efficient fenestration will, for the foreseeable future, always be a part of standards and rules relating to energy-efficient construction. In fact, a recent proposed rule from DOE regarding manufactured housing specifically refers to the SCC in its suggestion that $4.7 trillion of savings will be gained over a 30-year period with adoption of the rule.

The impact of the Zero Zone case shows that the government may ‘estimate’ an actual dollar value to the global economic benefits to the environment, agriculture and health. The federal government may dare to undertake such an estimate in support of its policy of carbon reduction. But, on the other hand, one who dares give an estimated dollar value for per-home energy savings as a result of energy-efficient fenestration products should consider that he/she may be seen as merely “blowing smoke.”

John Nolan is an attorney with The Gary Law Group, a law firm based in Portland, OR, that focuses on legal issues facing manufacturers of windows and doors. Contact him at 217/526-4063 or John@prgarylaw.com.