New White House Guidance Moves ‘Social Cost of Carbon’ Metric to Side Burner

The guidance, available here, entitled “Guidance Implementing Section 6 of Executive Order 14154, Entitled ‘Unleashing American Energy’” states that regulators have frequently used SCC where not explicitly required by statute and that the Administration has already pared back many of those programs.

Below, we will describe SCC, discuss how prior Administrations addressed it, and outline issues the regulated community should watch for in coming years.

What Is in the Guidance?

The new Guidance — issued by the White House in consultation with the Environmental Protection Agency (EPA) — initially states that “calculation of the social cost of carbon ‘is marked by logical deficiencies, a poor basis in empirical science, politicization, and the absence of a foundation in legislation.’” (For more on “Unleashing American Energy,” see here.) The Guidance continues by elaborating on Section 6’s requirements:

• That situations “where agencies will need to engage in monetized greenhouse gas emission analysis will be few to none.”
• That where legally required to calculate estimates, regulatory personnel should be guided by the 2003 Circular A-4, and not by the 2023 replacement.
• That any regulatory or permitting analysis should be limited to “the minimum consideration required to meet a statutory requirement” and that agencies should consult with EPA to see what this entails.
• That no “Supreme Court case law of which OIRA or the EPA is aware provides that greenhouse gas emissions must be quantified or that agencies must monetize the impact of such quantifications in connection with any particular statutory regime or as a general matter” and that agencies should consult with the US Department of Justice (DOJ) if lower court decisions appear to require quantification to ascertain whether agencies should deploy the “nonacquescence” doctrine.
• That quantification of SCC can be uncertain and misleading due to reasons ranging from climate changes having multiple factors to changes in world birth rates to disputes over the appropriate discount rates to deploy.

What Is SCC?

The SCC is a metric used to quantify the economic damages associated with an incremental increase in carbon dioxide emissions in a given year. It represents the monetary value of the long-term harm caused by a ton of carbon dioxide emissions, including impacts on agriculture, health, property damages from increased flood risk, and changes in energy system costs. While controversial, SCC has been crucial for policymaking, helping governments and organizations assess the benefits of reducing emissions versus the costs. By incorporating SCC into decision-making, regulators are able to guide investments and regulations toward more sustainable and climate-friendly practices.

History of SCC

The primary tool regulators use to estimate the cost and benefits of regulation is called Circular A-4. This and other tools are often widely debated and contentious. Key precedent here includes the Clinton Administration’s 1993 Executive Order instructing agencies to “assess all costs and benefits of available regulatory alternatives, including the alternative of not regulating [when] deciding whether and how to regulate.”

Subsequent Administrations implemented the Clinton Executive Order under the George W. Bush Administration’s 2003 Circular A-4, which compelled agencies to measure and report the “benefits and costs of Federal regulatory actions” using a standard set of metrics. Relevant here, Circular A-4 instructs agencies to use both a 3% and 7% discount rate when conducting regulatory analyses and to consider domestic, and not global, costs and benefits.

The Obama Administration was the first to directly consider the “social cost of carbon” in 2009. While it purported to follow guidance contained in Circular A-4, it rejected the use of both 3% and 7% discount rates as well as consideration of only domestic effects based on the global impact of carbon dioxide emissions. (See here.) After the first Trump Administration halted these efforts, the Biden Administration reinstated them through its own Executive Order. After a Louisiana District Court struck down the Biden Administration’s efforts citing the “major questions doctrine,” in 2022, the Fifth Circuit overturned this decision and permitted the Biden Administration to return the metric to use. In 2023, The Biden Administration proposed further modifications to Circular A-4. (For more see here.) After the Trump Administration took office in January, it sought to rescind the Biden Administration’s changes and claimed to revert to the 2003 version.

What to Watch

The Trump Administration’s SCC efforts focus on these themes:

SCC and “Energy Dominance”

The Trump Administration’s energy policies emphasize increased development of fossil fuels driving down per-unit costs of energy even if energy consumption were to increase. Accounting for carbon costs could serve to make fossil fuels appear more costly and less viable as regulatory analyses would need to factor in costs associated with climate change which are believed to follow from fuel use. (For more see here and here.)

“Nonacquiescence”

The guidance invokes the legal “nonacquiescence” doctrine in which agencies assert that court decisions which are incongruent with agency preferences are nonbinding. This note builds on both the “Unleashing America Energy” Executive Order and the Trump Administration’s April suite of actions, which call for agencies to search out for escape hatches for regulations determined to be inconsistent with Administration priorities.

SCC and Deregulation

The effort to deemphasize calculation of SCC is consistent with other recent “deregulatory” developments including directing the DOJ to evaluate whether state energy-related actions interfere with federal priorities, moving toward “zero-based” regulatory budgeting including far broader incorporation of regulatory sunset provisions which terminate regulations after relatively short periods of time, and directing agencies to take a hard look at regulations to assess whether they were inconsistent with US Supreme Court precedent. (For more see here.)

Deemphasized Climate Data

Finally, the SCC guidance was released on the heels of news accounts indicating that federal regulators including the National Oceanic and Atmospheric Administration (NOAA) would no longer track the cost of climate-fueled weather events like floods, heat waves, and wildfires. In a statement released with this policy change, NOAA indicated that the change was “in alignment with evolving priorities, statutory mandates, and staffing changes.” Members of the firm’s Environmental and Environmental, Social & Governance teams regularly monitor regulatory and court decisions affecting businesses and communities.