Social Cost of Carbon

Revisiting the most important number you haven’t heard of
By John Nolan
October 18, 2017
COLUMN : Legal | Codes & Standards

A little over a year ago, we provided a general summary of then-recent events relating to the development and implementation of an innovative conceptual number, expressed monetarily, known as the “Social Cost of Carbon.” SC CO2 is defined by the EPA as an estimate of the economic damages associated with a small increase in carbon dioxide emissions, conventionally one metric ton, in a given year. Change is in the wind regarding the scope of the SC CO2. 

The Trump administration issued an Executive Order earlier this year, entitled “Promoting Energy Independence and Economic Growth.” It guides how federal agencies, such as the Department of Energy and the Environmental Protection Agency, will undertake rule-making procedures. This changes many significant aspects of existing U.S. energy policy (and has prompted vocal opposition from environmental activists). Part of the Executive Order relates to how the government will implement the SC CO2, which commentators have described as “the most important number you haven’t heard of.” 

The EPA described the SC CO2 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. Privately, the SC CO2 has been described as a very simple number derived from a very complicated calculation. Near the end of the Obama administration, the SC CO2 was set at $36 per metric ton per year.

The significance of the SC CO2 was gaining great momentum with the Obama administration’s efforts to lead in the area of greenhouse gas reduction by implementing climate change policies. Now, with Trump’s Executive Order, the future of further development and application of SC CO2 number is uncertain. 

A Limited Focus

The Executive Order does not completely discard the notion that greenhouse gas emissions must be a consideration in developing governmental rules and regulations. But, Section 5 of the order dismantles the foundation of the Obama administration’s efforts to make the SC CO2 the norm. It does so by disbanding the Interagency Working Group on Social Costs of Greenhouse Gases, which the Obama administration helped establish to further develop the concept of SC CO2 as a tool to support efforts to write federal carbon reduction regulations. And, Section 5 also withdraws technical support documents developed to clarify the use of the SC CO2, stating that they are “no longer representative of governmental policy.” 

Further, the Executive Order requires that, in “monetizing” these costs, the analyses should focus primarily on the costs and benefits to “citizens of the United States” rather than including global costs and benefits. This marks a sharp departure from the previous administration’s efforts to utilize federal regulatory authority to implement its global energy and environmental policies.

For U.S. manufacturers and businesses, this change that considers the SC CO2 in terms of a more limited focus on the U.S. versus global effects may be the most significant change. A decrease in regulatory costs should, in theory, result in decreased costs and increased ease of production. However, federal and state regulations will continue to emerge and develop from agencies affecting the window and door industry—including the EPA, DOE and Department of Transportation—regardless of who or which party occupies the White House.

Given the proactive approach of individual states and local governments in adopting “beyond code” approaches to energy consumption reduction, the manner and method of assessing the effects of those regulations (such as the SC CO2 approach) will likely impact all members of the building industry. 

And, the continuous “ebb and flow” of the political process’ impact on how the adoption of federal and local regulations affect business will also always be with us. Again, energy-efficient fenestration will, for the foreseeable future, be a part of standards and rules relating to energy-efficient construction. 

It goes without saying that maintaining a watchful eye on these developments will be essential for the industry to keep pace. 

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.